Edited version of your written advice

Authorisation Number: 1051380451133

Date of advice: 31 May 2018

Ruling

Subject: International – residency and CGT

Question

Was I a resident between Winter 19XX and Spring 20XX?

Answer

No

Question

Did I become a resident in Spring 20XX when I returned to Australia?

Answer

Yes

Question

Am I required to lodge tax returns for the income years 20AA to 20BB?

Answer

Decline to rule

Question

Would I be deemed to have acquired my assets (except taxable Australian property) in Spring 20XX for their market value at that time pursuant to Section 855-45 of the ITAA 1997?

Answer

Yes

Question

Was the value of shares in XYZ Pty Ltd $X for the purposes of Section 855-45(2) of the ITAA 1997?

Answer

Ruling to be issued at a later date

This ruling applies for the following periods:

Year ended 30 June 20AA

Year ended 30 June 20BB

Year ended 30 June 20CC

The scheme commences on:

Winter 19XX

Relevant facts and circumstances

You left Australia for a working holiday in Winter 19XX to travel. You entered Country A on a working holiday visa with plans to seek a permanent employer sponsored visa which would allow you to pursue a career in that country.

You established a permanent place of abode and commenced work at Entity A. You also established a residence and saved a deposit for a home.

You enrolled on the local electoral roll.

You purchased a property in Country A.

In 20AA you were granted an indefinite leave to remain visa which allowed you to live in Country A permanently.

You purchased another property in Country A.

Between 19XX and 20AA you were employed in different positions with various employers, the last of which offered an employer sponsorship to enable you to stay and legally work in the Country A beyond your working holiday visa.

In 20AA you incorporated XYZ Pty Ltd with you as sole director and shareholder to establish a business in Country A.

You married your spouse in Winter 20BB. They applied for and was granted a Country A visa and joined you. You have lived together since that date. You established a home together.

In Autumn 20BB you were granted naturalisation as a Country A citizen.

You cancelled your enrolment on the Australian Electoral Roll.

In Spring 20CC you were issue with a passport as a Country A citizen.

You sold one property in 20DD and another property in 20EE.

In Spring 20FF you purchased a home in Australia.

In Spring 20XX you returned to Australia as a family with your children, completing the immigration entry cards as “a resident returning to Australia”.

You have since enrolled your children in a local school.

In Summer 20YY your spouse was granted a permanent visa allowing them to stay in Australia for an indefinite period.

Recently you re-enrolled on the Australian Electoral Roll.

Relevant legislative provisions

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

Income Tax Assessment Act 1997 Subsection 855-45

Income Tax Assessment Act 1997 Subsection 855-45(2)

Income Tax Assessment Act 1936 Subsection 6(1)

Reasons for decision

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 gained from all sources, whether in or out of Australia. However, where you are a foreign resident, your assessable income includes only income 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.

Resides Test

The outcomes of several Administrative Appeals Tribunal (AAT) cases have determined that the word 'resides' should be given the widest meaning and there have been a number of factors identified which can assist in determining if a particular taxpayer is a resident of Australia under this test.

The Courts and the Tribunal have generally taken into account the following eight factors in considering whether an individual is an Australian resident according to ordinary concepts in an income year:

● Physical presence in Australia;

● Nationality;

● History of residence and movements;

● Habits and ‘mode of life’

● Frequency, regularity and duration of visits to Australia;

● Purpose of visits to or absences from Australia;

● Family and business ties with Australia compared to the foreign country concerned; and

● Maintenance of a place of abode.

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.

In Landy v FC of T 2016 ATC 10-435;[2016] AATA 754, the taxpayer took on a supervisory role at an oilfield in Oman that lasted 21 months. On or before departure, he cancelled his Medicare, notified his private health insurance fund, requested his name be removed from the electoral roll and completed an outgoing passenger card indicating that he was leaving Australia permanently. However, throughout his employment in Oman he financially supported his wife in Australia, garaged his two motor vehicles at her home, maintained a joint bank account with his wife, maintained his offices as director and secretary of an Australian company (his wife being the other director and shareholder) and resumed living with his wife on his return. The AAT found that the taxpayer's lack of severance of connections with Australia, and the lack of establishment of enduring and lasting living ties with Oman, required a conclusion that the taxpayer had not ceased to be a resident of Australia as ordinarily understood.

In your case, you are a citizen of Australia who departed Australia with the intention of residing overseas permanently. You have provided details of your travel to and from Australia which show that you were onshore for X days in the 2018 income year, Y days in the 2017 year and Z days in the 2016 year.

Your behaviour is consistent with not residing in Australia and being considered a non-resident for tax purposes under the resides test after your departure until your return when you resumed your residency.

We will now also include a discussion of the ‘domicile and permanent place of abode’ test as an alternative argument.

The domicile test

Under the domicile test, a person is a resident of Australia if their domicile is in Australia unless the Commissioner is satisfied they have a permanent place of abode outside of Australia.

Domicile

“Domicile” is a legal concept to be determined according to the Domicile Act 1982 and common law rules. A person’s domicile is in their country of origin unless they acquire a different domicile of choice or operation of law. To obtain a different domicile of choice, a person must have the intention to make their home indefinitely in another country, usually done by obtaining a migration visa. The domicile of choice which a person has at any time continues until that person acquires a different domicile of choice.

In your case, you are a citizen of Australia. You have left Australia and have chosen to live in the Country A where you have become a citizen with permanent residency.

You abandoned your domicile in Australia and acquired a domicile of choice in the Country A as you have the right to reside permanently in that country. This situation changed when you resumed your residency.

Permanent place of abode

A person’s ‘permanent place of abode’ is a question of fact to be determined in the light of all the circumstances of each case. (Applegate v. Federal Commissioner of Taxation 78 ATC 4051; 8 ATR 372 (Applegate))

In Applegate, the court found that ‘permanent’ does not mean everlasting or forever but it is to be contrasted with temporary or transitory.

The courts have considered ‘place of abode’ to refer to a person’s residence, where he lives with his family and sleeps at night.

Taxation Ruling IT 2650 Income Tax: Residency – Permanent place of abode outside Australia (IT 2650) provides a number factors which are used by the Commissioner in reaching a satisfaction as to an individual’s permanent place of abode. These factors include:

(a) the intended and actual length of the individual’s stay in the overseas country;

(b) any intention either to return to Australia at some definite point in time or to travel to another country;

(c) the intended and actual length of the individual’s stay in the overseas country;

(d) any intention either to return to Australia at some definite point in time or to travel to another country;

(e) the establishment of a home outside Australia;

(f) the abandonment of any residence or place of abode the individual may have had in Australia;

(g) the duration and continuity of the individual’s presence in the overseas country; and

(h) the durability of association that the individual has with a particular place in Australia, i.e. maintaining bank accounts in Australia, informing government departments, place of education of the taxpayer’s children, family ties.

Paragraph 24 of IT 2650 states that the weight to be given to each factor will vary with individual circumstances of each case and no single factor is conclusive. Greater weight should be given to factors (c), (e) and (f) than to the remaining factors.

Based on all the facts, the Commissioner is satisfied you have established a permanent place of abode in Australia. Therefore you are considered a resident of Australia under this test from the date you arrived in Australia with the intention of living here permanently with your family.

The 183 days 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.

In your circumstances your travel to Australia has limited to relatively brief visits until you returned. Accordingly, you will be treated as a resident under this test.

The superannuation test

An individual is still considered to be a resident if that person is eligible to contribute to the Public Sector 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 contributing member of the PSS or the CSS or a spouse of such a person, or a child under 16 of such a person. You will not be treated as a resident under this test.

Residency status

As you satisfy three of the four tests of residency outlined in subsection 6(1) of the ITAA 1936, you are a resident of Australia for income tax purposes from DDMMYY.

Reasons for decision – taxation returns

The question of whether to lodge taxation returns does not arise as you have lodged returns up to 20XX.

Accordingly the Commissioner declines to rule in this matter.

Reasons for decision – section 855-45

This section provides that “The first element of the cost base and reduced cost base of the asset (at the time you become an Australian resident) is its market value at the time”.

This section is subject to section 768-950, individuals who become Australian residents and who are temporary residents immediately after they become Australian residents. However, in your case, you have simply resumed your Australian residency so section 768-950 does not apply.

Accordingly, the first element of the costs base and reduced cost base of your assets is their market value at the time you became a resident.