Edited version of your written advice

Authorisation Number: 1051415940647

Date of advice: 22 August 2018

Ruling

Subject: Residency for income tax purposes

Question

Are you a resident of Australia for income tax purposes?

Answer

No

This ruling applies for the following period:

Year ending 30 June 2018

The scheme commences on:

1 July 2017

Relevant facts and circumstances

You are an Australian citizen

You are currently living in County A

You moved to County A in 20XX

Your spouse and X children accompanied you to County A

You previously applied for a private binding ruling to confirm your residency status from the date of departure and were determined to be a non-resident of Australia for income tax purposes

Your personal circumstances have not changed since the previous ruling

You purchased a property in Australia in 20XX and rented it out

You sold the property in 20XX and received a capital gain which will be assessed in the 20XX financial year

You want to claim the 50% discount on a capital gain from the sale of the property

Relevant legislative provisions

Income Tax Assessment Act 1936 Section 6-1

Income Tax Assessment Act 1997 Section 6-5

Income Tax Assessment Act 1997 Section 102-5

Income Tax Assessment Act 1997 Section 115

Income Tax Assessment Act 1997 Section 855-10

Income Tax Assessment Act 1997 Section 995

Reasons for decision

After you left Australia to live in County A you applied for a Private Binding Ruling and received a determination in 20XX that you were a non-resident for tax purposes.

As your circumstances have not changed you are still considered to be a non-resident of Australia for tax purposes.

Capital Gains Tax

Section 102-5 of the Income Tax Assessment Act 1997 (ITAA 1997) states that your assessable income includes any net capital gains for the income year.

Capital Gains Tax (CGT) is applied to any capital gain made on the disposal of a CGT asset, such as a property, and operates by treating net capital gains as taxable income in the tax year in which the asset is sold or otherwise disposed of.

In some instances, where the CGT asset is not taxable Australian property, a CGT gain or loss may be disregarded under section 855-10 of the ITAA 1997, however in your case the asset is taxable Australian real property and cannot be disregarded.

Conclusion

As you are not a resident of Australia, your assessable income only includes income gained from sources in Australia in accordance with section 6-5 of the ITAA 1997.

The capital gain made on the sale of your property is treated as Australian sourced taxable income and is therefore assessable within Australia.

Double Tax Agreement

The Double Tax Agreement (DTA) between County A and Australia does not determine your residency status, rather it is established under domestic law.

Where it is established that you are a resident of two contracting states, Article 4 of the DTA provides guidance as to how your residency status may be affected in determining which country has the taxation rights of a specific event.

A profit made on the sale of a property is addressed under Article 13 which states;

Income or profits from the alienation of land as defined in Article 6 may be taxed in the Contracting State in which that land is situated.

In your instance the property is located in Australia, which is the contracting state, and therefore the capital gain from the sale of a property is assessable in Australia.

Discount percentage

If an asset is held for at least 1 year then any gain is first discounted by 50% for individual taxpayers, or by 33.3% for complying superannuation funds and eligible life insurance companies.

To be eligible for the CGT discount, there are four criteria that must be met;

● the capital gain must be made by an individual, trust or complying super fund (sect 115-10 of the ITAA 1997) and

● the capital gain must result from a CGT event happening after 11.45am on 21 September 1999 (section 115-15 of the ITAA 1997)and

● the capital gain must have been worked out by either using a cost base that has been calculated without reference to indexation at any time or, for a capital gain that arose under CGT event K7, using the cost of the depreciating asset concerned (section 115-20 of the ITAA) and

● the capital gain must result from a CGT event happening to a CGT asset that was acquired at least 12 months prior to the CGT event (section 115-25 of the ITAA)

The discount percentage is the percentage by which the capital gain can be reduced. You can reduce the capital gain only after you have applied all the capital losses for the income year and any unapplied net capital losses from earlier years.

The discount percentage is 50% for individuals and trusts, and 33.33% for complying super funds and eligible life insurance companies.

For foreign resident individuals, the 50% discount was available until 8 May 2012 after which the application of subdivision 115-B of the ITAA 1997 acted to adjust the percentage so as to deny you the discount to the extent that you accrued a capital gain while a foreign resident.

The percentage will be 0% if you acquired the asset after 8 May 2012 and you were a foreign resident during all the period you owned the asset.

ATO view documents

Taxation Ruling IT 2650 Residency – Permanent place of abode outside Australia

Other references (Non ATO view – example court cases, etc):

R v Hammond (1982) ER 1477