Edited version of private advice

Authorisation Number: 1052174580748

Date of advice: 6 October 2023

Ruling

Subject: Residency - main residence CGT exemption

Question 1

Were you a resident of Australia for taxation purposes for the period that you were living in Country B?

Answer

No.

Question 2

Were you a resident of Australia for taxation purposes for the remainder of the 20XX-XX income year after you departed Country B?

Answer

Yes.

Question 3

Are you entitled to a full main residence exemption in relation to the disposal of the Property?

Answer

Yes.

This private ruling applies for the following periods:

Year ended 30 June 20XX.

Year ended 30 June 20XX.

Year ended 30 June 20XX.

Year ended 30 June 20XX.

Year ended 30 June 20XX.

The scheme commenced on:

01 July 20XX.

Relevant facts and circumstances

You were born in Country C in 19XX.

In 20XX, you permanently moved from Country C to Australia.

As a citizen of Country C, you are able to live in Australia using a Special Visa. You did not have to obtain a permanent residency visa or apply for Australian citizenship to remain in Australia indefinitely.

In 20XX, you commenced living with your ex-spouse.

In 20XX, you and your ex-spouse purchased the Property together. It was your main residence until 20XX.

You and your ex-spouse did not own any other properties during the time you owned the Property. You elected to use the absence rule to continue to treat the Property as your main residence after you ceased living in it.

In 20XX, you and your ex-spouse had a child. The child is an Australian citizen only.

In 20XX, you obtained citizenship in Country D by descent and a passport for that country.

In XX/20XX, you, your ex-spouse, and your child moved to Country B.

It was your intention to remain in Country B for a year for the purposes of travel and to introduce your child to Country B and the continent. You had intended to return to Australia after that year.

While in Country B, you rented out your Australian property and retained your car and personal belongings.

In March 2020, the Covid-19 pandemic placed Country B into lockdown, and the Australian border was closed.

While in Country B you rented a house on a month-by-month basis.

While living in Country B, you and your ex-spouse obtained employment and your child went to school.

In XX/20XX, your parent fell ill and was admitted to hospital which prompted you to decide to move back to Country C to care for them.

In XX/20XX, you and your ex-spouse separated. Your ex-spouse returned to Australia and you, and your child, arrived in Country C on XX/XX/20XX after stopping over in Australia for a short period to see family.

You and your child have been living with your parent and caring for them since this time. They are elderly and significantly unwell.

In XX/20XX, the Property was sold due to your separation.

The Property was rented out during the time you were living in Country B.

Since living in Country C, you have returned to Australia on occasion so your child can visit their other parent.

You have retained your Australian Medicare card, bank and superannuation accounts and an Australian credit card.

Your sibling and their family live in Australia.

You have obtained employment in Country C.

It remains your intention to return to Australia when you are no longer required to care for your parent.

You are not a member of the Public Sector Superannuation Scheme (PSS) or an eligible employee in respect of the Commonwealth Superannuation Scheme (CSS).

You are not the spouse or a child of a person who is a member of the PSS or an eligible employee in respect of the CSS.

Relevant legislative provisions

Income Tax Assessment Act 1936 section 6(1)

Income Tax Assessment Act 1997 Subdivision 118-B

Income Tax Assessment Act 1997 section 118-110

Income Tax Assessment Act 1997 section 118-145

Income Tax Assessment Act 1997 section 118-190

Reasons for Decision

Summary

Question 1

Having considered your circumstances as a whole and the residency tests, it has been determined that for the period you lived in Country B, you were not a resident of Australia for taxation purposes.

Question 2

It is concluded that for the remainder of the 20XX-XX income year after you departed Country B, you satisfied the 'domicile test'. Therefore, for this period you were a resident of Australia for taxation purposes as defined in subsection 6(1) of the Income Tax Assessment Act 1936 ('ITAA 1936').

Question 3

It is determined that you are eligible for the main residence exemption in relation to your disposal of the Property. Any capital gain or capital loss will therefore be disregarded.

Detailed reasoning

Question 1

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

•         You were not physically in Australia at any time during the period from when you departed for Country B until you returned approximately X years later.

•         Although your intention had been to temporarily move to Country B for a year to travel, you ended up living in Country B for X years.

•         You obtained employment while residing in Country B and your child was enrolled in school there.

•         You rented the same property while living in Country B.

You were not a resident of Australia under the resides test for the period you were living in Country B.

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

•         You were born in Country C in 19XX but moved to Australia in 20XX.

•         You have been able to live in Australia using a Special Visa, that is renewed every time you return to Australia.

•         You did not need to obtain a permanent residency visa to remain in Australia.

•         You owned a property in Australia from 20XX to 20XX.

•         Your child is an Australia citizen only.

•         It is your intention to reside in Australia permanently.

It is considered that you abandoned your domicile of origin in Country C and acquired a domicile of choice in Australia. You do not need to obtain a permanent residency visa or Australia citizenship to remain in Australia indefinitely, and you intend to live in Australia indefinitely.

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.

The phrase 'permanent place of abode' calls for a consideration of the physical surroundings in which you live, extending to a town or country. 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 their permanent place of abode outside Australia are:

•         whether the taxpayer has definitely abandoned, in a permanent way, living in Australia

•         whether the taxpayer is living in a town, city, region, or country in a permanent way.

The Commissioner considers the following factors relevant to whether a taxpayer's permanent place of abode is outside Australia:

(a)   the intended and actual length of the taxpayer's stay in the overseas country(paragraph 77 of TR 2023/1 states that as a rule of thumb for the purposes of determining whether a permanent place of abode has been established outside of Australia, 2 years is considered to be a substantial length of stay outside of Australia);

(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.

Application to your situation

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

•         You lived in Country B for approximately three and a half years which is significantly longer than the 2 year rule of thumb set out in TR 2023/1.

•         You did not return to Australia at any point from when you began living in Country B until you ceased living there.

•         You rented the same property while living in Country B, indicating settled accommodation.

•         You and your ex-spouse obtained employment in Country B and your child went to school there, strongly indicating that you had established a life in Country B for a substantial period.

The Commissioner is satisfied that your permanent place of abode was outside Australia during the period you lived in Country B.

Therefore, you were not a resident of Australia under the domicile test during this period.

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.

Application to your situation

The 183 days test is relevant where a person entered Australia during the income year. Therefore, it is not a relevant test in this case for determining your residency during the time you were in Country B after departing Australia.

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 did not satisfy any of the four tests of residency, you were not a resident of Australia for income tax purposes during the period you lived in Country B.

Question 2

We have considered each of the statutory tests listed above in relation to your particular facts and circumstances. We conclude that, for the remainder of the 20XX-XX income year after you departed Country B, you were a resident of Australia as follows.

Taking into account your individual circumstances, we have concluded that you were not a resident of Australia according to ordinary concepts.

However, we have concluded that you were a resident under the domicile test. This is because we consider that your domicile is in Australia and the Commissioner is not satisfied that your permanent place of abode was outside Australia. We considered the following factors in forming our conclusion:

•         You only moved back to Country C in XX/20XX to care for your parent, and intend to move back to Australia once you are no longer required there.

•         You are living temporarily with your parent.

•         You have retained an Australian superannuation account, Medicare card, bank accounts and credit card.

•         You have returned to Australia on various occasions since moving to Country C so your child can visit their other parent.

The 183 days test was not met for the 20XX-XX income year as you were not in Australia for 183 days or more during that income year.

You do not fulfil the requirements of the Commonwealth Superannuation test and are therefore not a resident under this test.

Conclusion

To be an Australian resident for taxation purposes, you only need to satisfy one of the four residency tests. Based on your circumstances, it has determined that for the remainder of the 20XX-XX income year after you departed Country B, you satisfied the conditions of the 'domicile test' and therefore you were a resident of Australia for taxation purposes.

You should note that this decision does not mean that you will be a resident of Australia for taxation purposes for future income years. A significant factor in arriving at this decision was that you have only been living in Country C for a relatively short period after returning there to care for your parent. If your stay becomes protracted then this may impact your residency status for taxation purposes in the future.

Question 3

The main residence provisions contained in subdivision 118-B of the ITAA 1997 allow an individual to disregard a capital gain or capital loss relating to the disposal of a dwelling which was that person's main residence.

The Property was your main residence from when you acquired your ownership interest in it, until you moved to Country B. Under section 118-145 of the ITAA 1997 you have chosen to continue to treat the dwelling as your main residence after you moved out. As the dwelling was being used for income producing purposes during your absence, the maximum period it can be treated as your main residence is six years. In your case, you used the Property for income producing purposes for less than six years and therefore the six year limit does not restrict your eligibility for the exemption.

The main residence exemption is not available to a person who was an excluded foreign resident when the dwelling was disposed of. This restriction does not apply in your case as you were a resident of Australia for taxation purposes when the Property was disposed of.

Therefore, you are eligible for the full main residence exemption.