Edited version of private advice

Authorisation Number: 1051589044576

Date of advice: 5 November 2019

Ruling

Subject: Residency

Question 1

Are you a resident of Australia for income tax purposes from X XXXX 2018?

Answer

No.

Question 2

Are you required to pay capital gains tax on the sale of your main residence?

Answer

No.

This ruling applies for the following period:

Year ended 30 June 2019

The scheme commences on:

1 September 2018

Relevant facts and circumstances

You were born in Country Y.

You are a citizen of country Y.

You commenced living in Australia in 2012.

You were granted permanent residency of Australia in 2013.

You left Australia to work in Country X on X XXXX 2018.

You have gone to Country X permanently.

Your spouse joined you in Country X on XX XXXX 2019.

You and your spouse purchased a property in Australia in 2016.

You sold your home in Australia in XXX 2019 for $XXX.

The property in Australia was your main residence for the whole of your ownership period.

You are building a house in Country X.

You and your spouse are not eligible to contribute to the PSS or the CSS super funds.

Relevant legislative provisions

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

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.

Section 995-1 of the ITAA 1997 defines an Australian resident for tax purposes as a person who is a resident of Australia for the purposes of the Income Tax Assessment Act 1936 (ITAA 1936).

The terms 'resident' and 'resident of Australia', in regard to an individual, are defined in subsection 6(1) of the ITAA 1936. The definition provides four tests to ascertain whether a taxpayer is a resident of Australia for income tax purposes. The tests are:

·         the resides test,

·         the domicile test,

·         the 183 day test, and

·         the superannuation test.

If any one of these tests is met, an individual will be a resident of Australia for taxation purposes.

Based on the facts you have provided, we can conclude that you will not satisfy any of the tests of residency.

Accordingly you are not a resident of Australia for income tax purposes under section 995-1(1) of the ITAA 1997 and subsection 6(1) of the ITAA 1936.

Main residence exemption

Section 118-110 of the ITAA 1997 provides that you can disregard a capital gain or capital loss made from a CGT event that happens to a dwelling that is your main residence. To qualify for full exemption, the dwelling must have been your main residence for the whole period you owned it, the ownership period, and must not have been used to produce assessable income.

You purchased your home in XXX 2016 in Australia. The property was sold in XXXX 2019. This property was your home for the whole of your ownership period. Therefore you would be entitled to the main residence exemption and any capital gain or loss you make from the sale of your property will be disregarded.

Proposed changes

On 9 May 2017, the government announced that Australia's foreign resident capital gains tax (CGT) regime will be extended to deny foreign and temporary tax residents access to the CGT main residence exemption.

Taxpayers who purchased a property in Australia prior to 9 May 2017 and sold the property before 30 June 2020 are able to use the main residence exemption to exempt the sale of the property from capital gains tax.

If the bill becomes law and is not changed, as your property was purchased prior to 9 May 2017 and sold before 30 June 2020 you could still apply the main residence exemption to the sale of the property. However you should be aware that this situation could change if changes are made to the proposed bill before it becomes law.