Edited version of private advice

Authorisation Number: 1051901016461

Date of advice: 20 September 2021

Ruling

Subject: Residency

Question

Are you an Australian resident for taxation purposes while you were in Country A for capital gains tax (CGT) discount purposes (period 1)?

Answer

Yes.

Question

Are you an Australian resident for taxation purposes while you were in Country B for capital gains tax (CGT) discount purposes (period 2)?

Answer

No.

This ruling applies for the following periods:

Year ended 30 June 2018

Year ended 30 June 2019

Year ended 30 June 2020

Year ended 30 June 2021

The scheme commences on:

31 July 2017

Relevant facts and circumstances

You were born in Country B.

You lived in Australia from XX and were granted Australian citizenship.

You departed Australia and re-located to Country A on a temporary work visa initially for 90 days and extended to one year.

Your spouse accompanied you on a temporary spouse visa. Your spouse did not work during your time in Country A.

Your children were initially in Australia while you were in Country A, but soon joined you.

You entered into a short-term lease for a villa in a compound while you were in Country A.

You were contracted by Company A in Country A for approximately 10 months to assist with adopting western business practices. The contact ended and you left Country A.

Your intention after the contract with the company in Country A ended was to re-locate back to Australia.

A few weeks prior to re-locating back to Australia, you were presented with a job opportunity with Company B in Country B and accepted the offer.

You relocated to Country B.

The purpose for employment at Company B was to learn the business operations and return to Australia to manage the Australian based operations.

Due to the changed circumstances of your employment at Company B, you no longer had a guaranteed position in Australia, and you resigned from your position.

You intended to move back to Australia in approximately two and a half years after you arrived in Country B.

Due to COVID-19 travel restrictions, you were not able to re-locate back to Australia.

You gained employment with Company C on a permanent basis.

You manage Country B's operations of Company C and intend to move into a leadership position in Australia when the opportunity arises.

You have advised your intentions are to move back to Australia within the next four years or sooner depending on employment, lifestyle and travel restrictions.

You rented a townhouse for approximately six months after arrival in Country B.

You have purchased a main residence approximately six months after arriving in Country B.

You have a motor vehicle, household effects and have an active bank account in Country B.

You still retain your main residence in Australia and it is currently leased out to tenants. You assess this on a month by month basis.

You still have household effects which are situated in your main residence in Australia as it is leased on a semi-furbished basis. Some household effects are also held by relatives.

You purchased an Australian investment property in XX. You entered a contract of sale for the property on XX and the property settled on XX.

You gained assessable income from your financial investments and rent in Australia.

You have a spouse and dependent children who moved to Country B with you. Your children attend school in Country B.

You have children from a previous marriage that live independently in Australia.

Your spouse is an Australian citizen and has a permanent resident status in Country B.

Your spouse currently works remotely in for an overseas company. Your spouse is a member of a professional association in Australia and recently graduated from an Australian university.

Your spouse has an extended family in Australia, and you have a family member who lives in Australia.

You have an extensive professional and social network in Australia. You also have made a small network of friends in Country B.

Neither you nor your spouse have ever been a member of the Commonwealth Superannuation Scheme or the Public Sector Superannuation Scheme.

You did not advise the Australian Electoral Office to have your name removed from the electoral roll.

You did not advise Medicare that you were departing Australia.

You advised your superannuation fund manager of your travel arrangements.

You put your private health insurance policy on hold but still retain membership with your private health insurance provider in Australia.

You have lodged your Australian income tax returns from years ended XX to XX as a non-resident.

You lodged income tax returns in Country B since you arrived.

You did not lodge an income tax return in Country A as you did not have a requirement to lodge.

You indicated on your Australian Immigration Outgoing passenger card that you were departing Australia 'for business purposes on a temporary basis'.

Relevant legislative provisions

Income Tax Assessment Act 1936 Subsection 6(1)

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

Reasons for decision

Section 995-1 of the Income tax Assessment Act 1997 (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, as applied to an individual, are defined in subsection 6(1) of the ITAA 1936.

The definition offers four tests to ascertain whether each individual 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 they reside in Australia according to the ordinary meaning of the word resides.

Where an individual does not reside in Australia according to ordinary concepts, they will still be an Australian resident if they meet the conditions of one of the other 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'. These definitions have been highlighted in cases as being definitive observations of the meaning of resides (see Viscount LC in Levene v Commissioners of Inland Revenue [1928] AC 217 and Logan J in Stockton v Federal Commissioner of Taxation [2019] FCA 1679).

The observations contained in the case of Hafza v Director-General of Social Security (1985) 6 FCR 444 are also important:

Physical presence and intention will coincide for most of the time. But few people are always at home. Once a person has established a home in a particular place - even involuntarily: see Commissioners of Inland Revenue v Lysaght [1928] AC 234 at 248; and Keil v Keil [1947] VLR 383 - a person does not necessarily cease to be resident there because he or she is physically absent. The test is whether the person has retained a continuity of association with the place - Levene v Inland Revenue Commissioners [1928] AC 217 at 225 and Judd v Judd (1957) 75 WN (NSW) 147 at 149 - together with an intention to return to that place and an attitude that that place remains " home ": see Norman v Norman (No 3) (1969) 16 FLR 231 at 235... [W]here the general concept is applicable, it is obvious that, as residence of a place in which a person is not physically present depends upon an intention to return and to continue to treat that place as " home ", a change of intention may be decisive of the question whether residence in a particular place has been maintained.

Case law decisions have considered the following factors in relation to whether the taxpayer was a resident under the 'resides' test:

•  Physical presence

•  Intention or purpose of presence

•  Family and business/employment ties

•  Maintenance and location of assets, and

•  Social and living arrangements

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 each individual's circumstances.

We consider that your circumstances are not consistent with residing in Australia.

This is because:

• You have not physically resided in Australia during the relevant periods. You went overseas to live and work for a considerable period of time and have not returned since you left Australia.
• You intended to re-locate back to Australia after the contract finished with Company A in Country A. However, you instead elected to re-locate to Country B for employment.
• You intended to move back to Australia two and a half years after arriving in Country B. However, because of COVID-19 travel restrictions and employment, you have remained in Country B. You anticipate remaining in Country B for the near future.
• Your spouse and dependent children accompanied you overseas and resided with you in Country A and Country B.
• You did not have access to your Australian property and household effects as this has been leased on normal commercial terms to tenants semi-furbished.
• You and your family have established new social, professional and educational connections overseas.

You are not a resident of Australia under the resides test for the relevant periods.

Domicile test

Under the domicile test, you are a resident of Australia if your domicile is in Australia unless the Commissioner is satisfied that your permanent place of abode is outside Australia.

Domicile

Whether your domicile is Australia is determined by the Domicile Act 1982 and the common law rules on domicile.

Your domicile is your domicile of origin (usually the domicile of your father at the time of your birth) unless you have acquired a domicile of choice elsewhere. To acquire a domicile of choice of a particular country you must be lawfully present there and you must hold the positive intention to make that country your home indefinitely. Your domicile continues until you acquire a different domicile. Whether your domicile has changed depends on an objective consideration of all relevant facts.

In your case, you obtained Australian citizenship in XX and your domicile of choice is Australia.

It is considered that you did not abandon your domicile of choice in Australia and acquire a domicile in Country A or Country B for the relevant periods.

Permanent place of abode

If you have an Australian domicile, you are an Australian resident unless the Commissioner is satisfied that your permanent place of abode is outside Australia. This is a question of fact to be determined in light of all the facts and circumstances of each case.

'Permanent' does not mean everlasting or forever, but it is to be distinguished from temporary or transitory. It means something less than a permanent place of abode which a person intends to live for the rest of his or her life. It should be contrasted with a temporary or transitory place of abode outside of Australia.

The courts have held that the phrase 'permanent place of abode' calls for a consideration of the town or country where a person is located. It does not extend to more than one country, or a region of the world.

The Full Federal Court in Harding v Commissioner of Taxation [2019] FCA 29 held at paragraphs 36 and 40 that key considerations in determining whether a taxpayer has his or her permanent place of abode outside Australia are:

(a)  whether the taxpayer has definitely abandoned, in a permanent way, living in Australia; and

(b)  whether the taxpayer is living permanently in a specific country.

An intention to return to Australia in the foreseeable future to live does not prevent the taxpayer in the meantime setting up a "permanent place of abode" elsewhere.

Paragraph 23 of Taxation Ruling IT 2650 Residency - Permanent place of abode outside Australia sets out the following factors which are used by the Commissioner in reaching a state of satisfaction as to a taxpayer's permanent place of abode:

(a)   the intended and actual length of the taxpayer's stay in the overseas country;

(b)   whether the taxpayer intended to stay in the overseas country only temporarily and then to move on to another country or to return to Australia at some definite point in time;

(c)   whether the taxpayer has established a home (in the sense of dwelling place; a house or other shelter that is the fixed residence of a person, a family, or a household), outside Australia;

(d)   whether any residence or place of abode exists in Australia or has been abandoned because of the overseas absence;

(e)   the duration and continuity of the taxpayer's presence in the overseas country; and

(f)    the durability of association that the person has with a particular place in Australia, i.e. maintaining assets in Australia, informing government departments such as the Department of Social Security that he or she is leaving permanently and that family allowance payments should be stopped, place of education of the taxpayer's children, family ties and so on.

As with the factors under the resides test, no one single factor is decisive, and the weight given to each factor depends on the individual circumstances.

Period 1

The Commissioner is not satisfied that your permanent place of abode is outside Australia during this period. This takes into account that:

• You lived in Country A for less than one year.

• You departed to work in Country A only on a temporary contract basis.
• You had a short-term lease for a villa in Country A for less than a year.
• You had a temporary work visa and your spouse had a temporary spouse visa that were only short-term visas.
• You intended to return back to Australia after the contract concluded.
• You moved to another country after the contract finished with Company A.

You are a resident of Australia under the domicile test outlined in the definition of 'resident' in subsection 6(1) of the ITAA 1936 for the relevant period.

Period 2

The Commissioner is satisfied that your permanent place of abode is outside Australia. This takes into account that:

• You have physically resided in Country B for a considerable amount of time (more than two years).
• You were employed with Company B with the prospect of re-locating back to Australia to manage the Australian operations. Your employment circumstances changed, and the opportunity was no longer available.
• You intended to move back to Australia after ceasing employment with Company B. COVID-19 travel restrictions prevented you from re-locating and you stayed in New Zealand.
• As a result, you sought employment on a permanent basis with Company C. The position is based in Country B.
• You did not have guaranteed employment or a position in Australia to re-locate back to.
• You and your family have established a new main residence in Country B.
• Your immediate family reside with you in Country B. Your children attend school and your spouse works remotely in Country B.
• You intend to remain overseas for an extended period of time depending on your employment, environmental and personal factors with no definite date you will re-locate back to Australia.
• You have abandoned your family residence and household effects in Australia by leasing your Australian main residence to tenants.

Therefore, you are not a resident of Australia under this test for the relevant ruling period.

183-day 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.

You have not been present in Australia for 183 days or more during the relevant ruling periods.

You are not a resident under this test.

Superannuation Test

An individual is a resident of Australia if they are either a member of the superannuation scheme established by deed under the Superannuation Act 1990 or an eligible employee for the purposes of the Superannuation Act 1976, or they are the spouse, or the child under 16, of such a person.

You are not a contributing member of the Public Sector Superannuation Scheme (PSS) or the Commonwealth Superannuation Scheme (CSS) or a spouse of such a person, or a child under 16 of such a person.

You are not a resident under this test for the relevant ruling periods.

Conclusion

Period 1

As you satisfy the domicile test for this period, you are a resident of Australia for income tax purposes for period 1.

Period 2

As you do not satisfy any of the four tests of residency for this period, you are considered a non-resident for income tax purposes for period 2.

Other relevant comments

If you wish to amend your income tax assessments outside the period of review, (Generally, two years from the date the notice of assessment is issued), you will be required to lodge an objection to the relevant notice of assessment for an extension of time to amend.