Edited version of private advice

Authorisation Number: 1052143999600

Date of advice: 26 July 2023

Ruling

Subject: International - residency

Question 1

Were you an Australia resident for tax purposes for the relevant period?

Answer

No.

Question 2

Can you apply the 50% capital gains tax (CGT) discount to the capital gain you made on the disposal of the property?

Answer

No.

This ruling applies for the following period:

Year ending 30 June 20XX

The scheme commenced on:

XX July 20XX

Relevant facts and circumstances

You were born in Country A.

You are a citizen of Country A.

In 20XX you acquired a two bedroom apartment in City A, Country A (City A Apartment), jointly with your spouse. This is the only asset you own in Country A. You lived there with your spouse and child.

The City A Apartment is your family home and members of your family stay there if they travel back for holidays. You returned to the apartment after each visit to Australia.

On XX November 20XX your child arrived in Australia. Your child is an Australian citizen and lives in City B.

You made several trips to Australia to visit your child and their family to assist with the care duties following the birth of your first grandchild. Each trip was for up to two weeks in duration.

You also wanted to experience what living in Australia is like, in preparation for migrating here permanently.

In 20XX you acquired some vacant land in City B. You acquired it as joint tenants with your child.

In 20XX you built a house on the vacant land (the Property). You built the Property for your child and your spouse to live in while your child was studying, however due to a change in personal circumstances, the Property was rented out between for a number of years.

On XX February 20XX both you and your spouse submitted an application for a Visa, which would allow you to move to or stay in Australia as a permanent resident and apply for Australian citizenship, if eligible.

On XX December 20XX you opened your bank account in Australia.

You have approximately $X in cash held in Australia.

The Australian borders closed from XX March 20XX until XX November 20XX due to the COVID-19 pandemic.

On XX August 20XX you entered a contract to sell the Property and you made a capital gain. Settlement occurred in October 20XX.

Shortly after you changed your visa. This visa also allows you to move to or stay in Australia as a permanent resident and apply for Australian citizenship, if eligible.

You currently hold a Visa which lets you visit Australia as a tourist, to see family and friends or for purposes other than business or medical treatment for a period of up to 12 months.

On XX November 20XX you applied to migrate to Australia.

On XX December 20XX you travelled back to Australia when the border re-opened and you stayed with your child in their home.

You remained in Australia until XX June 20XX.

During this time you joined a local Country A Community, but due to a fear of COVID-19, you mainly connected to the community through online activities.

You had to adhere to a number of conditions as part of your Visitor Visa including:

•                     8501 - Maintain health insurance

•                     8558 - Maximum 12 months stay in 18 months

•                     8101 - No work

•                     8201 - Maximum three months study

Your spouse could not accompany you to Australia during this trip as they experienced difficulties renewing their passport. The local Government also did not encourage travel overseas at this time and from December 20XX to May 20XX they had major dental work done in Country A.

On XX June 20XX you left Australia to return to Country A to undergo two minor surgeries for health reasons. You do not have Medicare in Australia. You had been in Australia for 183 days.

On XX August 20XX your spouse arrived in Australia.

On XX April 20XX you officially retired and became eligible for the Country A's equivalent of superannuation. Prior to this official date, you had chosen to retire early. During the period of this ruling you did not work. You were living off savings.

You were still in Country A at the time of your official retirement so you handled all the paperwork involved.

On XX December 20XX you returned to Australia.

You and your spouse are currently living with your daughter in City B.

It has been noted that on XX March 20XX you obtained your Learner's Driver's Licence and you are in the process of obtaining your Full Driver's License.

In January 20XX you received notice from the Department of Home Affairs that the processing of your Permanent Resident Visa had commenced processing.

You will purchase a property in Australia once your Permanent Resident Visa has been granted.

The City A apartment will remain vacant until your Permanent Resident Visa has been granted and will then be sold.

Relevant legislative provisions

Income Tax Assessment Act 1997 subsection 6-5(1)

Income Tax Assessment Act 1936 subsection 6(1)

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

Reasons for decision

Question 1

Summary

Having considered your circumstances as a whole and the residency tests, it has been determined that you are not a resident of Australia for income tax purposes for the relevant ruling period.

Overview of the law

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 TR 2023/1 Income tax: residency tests for individuals.

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.

Because the ordinary concepts test is whether an individual resides in Australia, the factors focus on the individual's connection to Australia. Having a connection with another country, or being a resident of another country, does not diminish any connection to Australia: Logan J in Pike v Commissioner of Taxation [2019] FCA 2185 at 57 reminds us that 'it is no part of the ordinary meaning of reside in the 1936 Act that there be a "principal" or even "usual" place of residence. ... It is important that ... "resident" not be construed and applied as if there were such adjectival qualifications.' For this reason, the test is not about dominance or exclusivity.

Application to your situation

We do not consider that your circumstances are consistent with you residing in Australia for the relevant ruling period.

We understand that it is your intention to migrate to Australia, and you are in the process of working through the necessary steps to obtain a permanent resident visa. However, on balance, your circumstances do not demonstrate that you were residing in Australia according to the ordinary meaning of the word during the period of this ruling.

In particular your continued family ties to Country A with your spouse remaining in Country A while you were in Australia, your family home that you retained in Country A and that was available to you and your family, your intention to return to Country A to have medical procedures completed and your return to Country A to finalise details for your retirement. When you returned to Country A, you returned to the family home, and remained there for six months before returning to Australia.

You had sold your Property in Australia before arriving here in December 20XX. You are yet to purchase another property in Australia and whilst staying here you were staying with your child and their family in their home

You have since applied for an Australian driver's licence, and plan to purchase another Property once your permanent visa has been granted, however these things did not occur during the ruling period.

You continued to have a strong continuity of association with Country A and are not a resident of Australia under the resides test for the relevant period.

You may still be an Australian resident if you meet the conditions of one of the other tests (the domicile test, 183-day test and Commonwealth superannuation fund test).

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.

Application to your situation

In your case, you were born in Country A and your domicile of origin is Country A. You arrived in Australia on XX December 20XX and at that time you had a Visa which only allowed you to visit Australia as a tourist, to see family and friends or for purposes other than business or medical treatment for a period of up to 12 months.

It is considered that you did not abandon your domicile of origin in Country A and acquire a domicile of choice in Australia. While you have stated it is your intention to migrate to Australia, during the period of this ruling you were not entitled to reside in Australia indefinitely and you had not yet obtained permanent residency/citizenship in Australia.

Therefore, your domicile is Country A and you are not a resident of Australia under the domicile 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 (184 during a leap year), 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.

Application to your situation

The 20XX income year was a leap year. You were not in Australia for 184 days or more in the 20XX income year. Therefore, you are not a resident under this test.

You were in Australia for 183 days, and in a year that was not a leap year, you would have been a resident under this test unless the Commissioner is satisfied that your usual place of abode was outside Australia and you do not intend to take up residence in Australia.

For completeness, we have considered your usual place of abode.

Usual place of abode

In the context of the 183-day test, a person's usual place of abode is the place they usually live, and can include a dwelling or a country. A person can have only one usual place of abode under the 183-day test. However, it is also possible that a person does not have a usual place of abode. This is the case for a person who merely travels through various countries without developing any strong connections.

If a person has places of abode both inside and outside Australia, then a comparison may need to be made to determine which is their usual place of abode. When comparing two places of abode of a particular person, we will examine the nature and quality of the use which the person makes of each particular place of abode. It may then be possible to determine which is the usual one, as distinct from the other or others which, while they may be places of abode, are not properly characterised as the person's usual place of abode: Emmett J at [78] in Federal Commissioner of Taxation v Executors of the Estate of Subrahmanyam [2001] FCA 1836.

Application to your situation

We have taken the following into consideration when deciding whether your usual place of abode is in Australia:

•                     You were born in Country A and are a Country A citizen.

•                     You were living in Country A up until your arrival in Australia. You had made several trips to Australia prior to this time, however they were all short trips to visit your child.

•                     You remained in Australia for 183 during the period of the ruling. While you were here, you retained ownership of the City A Apartment which is your family home, and which remained available to you and your family during this time.

•                     Your spouse did not accompany you to Australia, remaining in City A Apartment in Country A.

•                     During your time in Australia, you lived with your child and their family in their home.

•                     You had retired so were not working either here or in Country A.

•                     During your time in Australia, you joined a local Country A Community, but due to a fear of COVID19, you mainly connected to the community through online activities

•                     After spending 183 days in Australia, you returned to Country A where you remained for 187 days.

•                     You sold the Property in Australia prior to your arrival. You have approximately $X of cash held in Australia.

•                     You are planning on migrating to Australia.

Based on the facts provided, we consider you to have a place of abode in both Australia and Country A. However, we are not satisfied that you have a permanent place of abode in Australia because you have not definitely abandoned Country A due to your spouse and family home in Country A.

While your stated intention is to migrate to Australia, this did not occur during the period of the ruling. You did not abandon your home in Country A, in fact spending half the year in Australia with your child, and half the year in Country A living in the family home.

Based on your circumstances, the Commissioner is not satisfied that your usual place of abode was in Australia for the relevant income year.

Intention to take up residency

To determine whether you intend to take up residence in Australia, we look at evidence of relevant objective facts. 'Intend to take up residency' does not merely mean intend to stay for a long time. It means intending to live here in such a manner that you would reside here.

Application to your situation

We have taken the following into consideration when deciding whether you intend to take up residence in Australia:

While your stated intention is to take up residence in Australia, this did not occur during the ruling period. In forming the relevant state of satisfaction, the Commissioner has to take into account not only stated intention but also the objective observable facts. The objective facts indicate a longer term intention to reside here, however your physical presence in Country A, your spouse remaining in Country A and your continued connection to Country A during the relevant period indicate a transitional period.

Based on your circumstances, the Commissioner is not satisfied that you did intend to take up residence in Australia for the relevant ruling period.

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.

Application to your situation

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

As you do not satisfy any of the four tests of residency, you are not a resident of Australia for income tax purposes for the relevant ruling period.

Question 2

Detailed reasoning

The 50% CGT discount is not available to foreign and temporary resident individuals for assets acquired after 8 May 2012.

This includes beneficiaries of trusts and partners in a partnership.

You can only apply the discount to part of your capital gain if either of the following happened:

•                     you acquired the asset on or before 8 May 2012

•                     you had a period of Australian residency after 8 May 2012.

Application to your situation

You acquired the Property in 20XX. Based on the facts that you have provided, you did not have a period of residency between when you acquired the Property and when you sold it. Therefore you are not entitled to apply to 50% CGT discount to the capital gain you made on the disposal of the Property.