Edited version of your written advice

Authorisation Number: 1051194932070

Date of advice: 2 March 2017

Ruling

Subject: Temporary residency and foreign source capital gains.

Question 1

Are you, a Country X citizen living and working in Australia under a temporary visa treated as a temporary resident under subsection 995-1(1) of the Income Tax Assessment Act 1997 after you became a spouse?

Answer

No.

Question 2

Will you be assessable in Australia on the capital gain from the sale of your Country X property on during the 20XX-YY financial year?

Answer

Yes.

Question 3

Is the income that you receive from your Country Y employer assessable in Australia?

Answer

Yes.

This ruling applies for the following period:

Year ended 30 June 20YY

The scheme commences on:

1 July 20XX

Relevant facts and circumstances

This ruling is based on the facts stated in the description of the scheme that is set out below. If your circumstances are materially different from these facts, this ruling has no effect and you cannot rely on it. The fact sheet has more information about relying on your private ruling.

You are a Country X citizen.

You have lived and worked in Australia since f.

You are in Australia on a temporary visa.

Your spouse lives and works in Australia under a visa.

Your spouse is a permanent resident under the Social Security Act 1991 due to this visa.

You owned a property in Country X which you purchased when you did not have a spouse and sold during the 20XX-YY financial year.

You are employed by Country Y employer.

You perform your work for Country Y employer from your home in Australia using the internet.

You commenced working for Country Y employer in the 20VV-WW financial year.

Your employment requires you to perform many duties.

You are employed under a part time arrangement.

Relevant legislative provisions

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

Income Tax Assessment Act 1997 Section 768-910

Income Tax Assessment Act 1997 Subsection 768-915(1)

Income Tax Assessment Act 1997 Section 768-955

Reasons for decision

Your temporary residency status

Subsection 995-1(1) of the Income Tax Assessment Act 1997 (ITAA 1997) states that you are a temporary resident if:

a) You hold a temporary visa granted under the Migration Act 1958; and

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, it states that you are not a temporary resident if you have been an Australian resident and any of the above paragraphs are not satisfied after 6 April 2006.

You are in Australia on a visa. This is a temporary visa under the Migration Act 1958 and does not make you a resident within the meaning of the Social Security Act 1991.

During the 20UU-XX financial year someone became your spouse as per the definition in subsection 995-1(1) of the ITAA 1997. This person is in Australia on a visa that makes them an Australian resident within the meaning of the Social Security Act 1991.

Based on these facts you will be a temporary resident before someone became your spouse but not after.

Taxation of your Country X property sale

You owned a property in Country X which you purchased whilst you were a temporary resident and sold after ceasing to be a temporary resident. In order to determine the taxation treatment of the gain on sale of the property there are two sections of the ITAA 1997 that need to be considered.

Subsection 768-950(1) of the ITAA 1997 provides that a capital gain or loss that a temporary resident makes from a CGT event is disregarded if:

a) You are a temporary resident when, or immediately before, the CGT event happens; and

b) You would not make a capital gain or loss from the CGT event, or the capital gain or loss from the CGT event would have been disregarded under Division 855, if you were a foreign resident when, or immediately before, the CGT event happens.

This section provides that once you cease to be a temporary resident the sale of a CGT asset is no longer disregarded.

In applying this to your circumstances this means that as you stopped being a temporary resident before the sale of your Country X property the capital gain made on the property will no longer be disregarded. Instead section 768-955 of the ITAA 1997 needs to be considered.

Section 768-955 of the ITAA 1997 provides that if you are a temporary resident and you then cease to be a temporary resident (but remain, at that time, an Australian resident for tax purposes) then there are rules relevant to each CGT asset that meets the following criteria.

If the asset:

● was owned just before you ceased being a temporary resident; and

● is not taxable Australian property; and

● was acquired after 20 September 1985.

Then the first element of the cost base and reduced cost base of these assets will be the market value at the time you ceased being a temporary resident.

Note: As section 768-955 of the ITAA 1997 is applicable Parts 3-1 and 3-3 of the ITAA 1997 will also applicable to the asset as if you had acquired it when you ceased being a temporary resident.

Taxation of Country Y employer income

As you are not a temporary resident for the ruling period the temporary resident provisions will not apply to you for foreign source income, however below is a discussion as to why the amount received from Country Y employer is assessable in Australia even if you were a temporary resident.

You have asked if your income from your non-Australian employer Country Y employer is foreign sourced income and thus non-exempt non-assessable income as per section 768-910 of the ITAA 1997.

In the case of French v. FC of T (1957) 98 CLR 398 it was established that the source of a taxpayer's income is the place in which it is performed. As you perform the majority of your work for Country Y employer in Australia the source of that income will be Australia. Due to this section 768-910 of the ITAA 1997 will not be applicable and the amount received from Country Y employer will be assessable in Australia.

To expand on this further, even if the income from Country Y employer was foreign source income paragraph 768-920(3)(a) of the ITAA 1997 would apply. This paragraph provides that ordinary income you derive directly or indirectly from a source other than an Australian source to the extent that it is remuneration, for employment undertaken, or services provided, while you are a temporary resident will not be non-assessable non-exempt income. As the income you are receiving from Country Y employer is in the form of a salary and thus it is assessable.

Considering all of the facts the income you earn from Country Y employer will be assessable in Australia.