Edited version of private advice

Authorisation Number: 1051995613294

Date of advice: 18 July 2022

Ruling

Subject: Residency

Question 1

Are you a resident of Australia for taxation purposes?

Answer

Yes.

Question 2

Are you entitled to the full main residence exemption on the sale of the relevant property?

Answer

Yes.

This ruling applies for the following period:

Year ended 30 June 20XX

Year ending 30 June 20XX

The scheme commences on:

1 July 20XX

Relevant facts and circumstances

You were born in Country Z.

You are a citizen of Country Z.

Prior to moving to Australia you were living in Country Y.

You came to Australia to live permanently several years ago.

Your spouse and children accompanied you to Australia.

You entered Australia on a visa.

You are currently in the process of obtaining permanent residency of Australia.

Your children attend school in Australia.

You have only left Australia for short visits since arriving in Australia.

You own assets of significant value in Australia.

You receive some overseas investment income.

You own a property in Country Y which your in-laws are living in.

All your social connections are in Australia.

Neither you nor your spouse are eligible to contribute to the Public Sector Superannuation Scheme (PSS) or the Commonwealth Superannuation Scheme (CSS).

You and your family lived in the property in question from when you acquired it until your recent move interstate. You are choosing to continue to treat the property as your main residence under the absence rule until it is sold.

The property is less than 2 hectares.

The property is currently in the process of being sold.

Assumptions

You will be present in Australia for at least 183 days during the 20XX-XX income year.

Relevant legislative provisions

Income Tax Assessment Act 1936 subsection 6(1)

Income Tax Assessment Act 1997 section 995-1

Income Tax Assessment Act 1997 section 118-110

Income Tax Assessment Act 1997 section 118-145

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 (also referred to as the ordinary concepts test)

•         the domicile test

•         the 183-day test, and

•         the Commonwealth superannuation fund test.

The resides test is the primary test for deciding the residency status of an individual. This test considers whether an individual resides 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 domicile test, 183-day test and Commonwealth superannuation fund test).

Our interpretation of the law in respect of residency is set out in Taxation Ruling IT 2650 Income tax: residency - permanent place of abode and Taxation Ruling TR 98/17 Income tax: residency status of individuals entering Australia.

We have considered the statutory tests listed above in relation to your situation as follows:

The resides test

The ordinary meaning of the word 'reside' has been expressed as 'to dwell permanently or for a considerable time, to have one's settled or usual abode, to live, in or at a particular place': See Commissioner of Taxation v Miller (1946) 73 CLR 93 at 99 per Latham CJ, citing Viscount Cave LC in Levene v Inland Revenue Commissioners [1928] AC 217 at 222, citing the Oxford English Dictionary. Likewise, the Macquarie Dictionary defines 'reside' as 'to dwell permanently or for a considerable time; have one's abode for a time'.

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.

The Commissioner considers the following factors in relation to whether a taxpayer is a resident under the 'resides' test:

•         period of physical presence in Australia

•         intention or purpose of presence

•         behaviour while in Australia

•         family and business/employment ties

•         maintenance and location of assets

•         social and living arrangements.

It is important to note that no one single factor is decisive, and the weight given to each factor depends on each individual's circumstances.

We have taken the following into consideration when determining whether you meet the resides test:

•         You have been living with your family in Australia since you arrived in Australia.

•         It is your intention to make Australia your permanent home.

•         Your children all attend school in Australia.

•         You purchased a home in Australia which you and your family lived in until your recent move interstate to live.

•         You have significant investments in Australia.

•         You have only left Australia for short visits for holidays and to visit family.

Having regard to the above, we consider you are residing in Australia according to ordinary concepts.

Although the law only requires you to be considered a resident under one test, for completeness the other tests are also considered.

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 in 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 a domicile of dependence or have acquired a domicile of choice elsewhere. To acquire a domicile of choice of a particular country you must be lawfully present there and 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 your domicile of origin is Country Z and you are a citizen of Country Z.

You have not changed your domicile to Australia yet.

You are not a resident under this test.

183-day test

Where a person is present in Australia for 183 days or more during the year of income the person will be a resident, unless the Commissioner is satisfied that both:

•         the person's usual place of abode is outside Australia, and

•         the person does not intend to take up residence in Australia.

You have been in Australia for 183 days or more during every full income year since arriving in Australia in 20XX and we assume that will continue to be the case for the 20XX-XX income year. And as the Commissioner is not satisfied that both of the above 2 points apply in your case, you are a resident under this test for the income years ruled on.

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 member on behalf of whom contributions are being made to 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. Therefore, you are not a resident under this test.

Conclusion:

You are a resident of Australia for taxation purposes since arriving in Australia.

Main residence exemption

Under section 118-110 of the ITAA 1997 you can generally disregard a capital gain or capital loss you make from the disposal of a dwelling that qualifies as your main residence when the dwelling was your main residence for the whole period you owned it, and your interest in the dwelling did not pass to you as a beneficiary in, and you did not acquire it as a trustee of, the estate of a deceased person.

Under section 118-120 of the ITAA 1997, to get the full exemption from CGT any land on which the dwelling is situated must be 2 hectares or less.

The property in question was your main residence from when you acquired it until your recent move interstate. You are choosing to continue to treat the property as your main residence under the absence rule provided by section 118-145 of the ITAA 1997 until it is sold.

The property is less than 2 hectares.

The property is currently in the process of being sold.

You are entitled to the full main residence exemption on the sale of the property.