Edited version of private advice

Authorisation Number: 1052203850446

Date of advice: 14 December 2023

Ruling

Subject: CGT and residency

Question 1

Are you a resident of Australia for tax purposes prior to XX XX 20XX?

Answer

No.

Question 2

Can the Commissioner disregard any capital gain or loss you make on the disposal of the investment property that you sold to pay debts related to medical expenses?

Answer

No.

The sale of property is a disposal of a capital gains tax (CGT) asset that results in a CGT event A1 occurring under section 104-10 of the ITAA 1997. The Commissioner does not have the discretion to disregard any capital gain or loss you make on the disposal of an investment property.

This ruling applies for the following periods:

Year ended 30 June 20XX

Year ended 30 June 20XX

Year ended 30 June 20XX

The scheme commenced on:

1 July 20XX

Relevant facts and circumstances

On XX XX 19XX you were born in Australia, and you continue to be a citizen of Australia.

In 20XX, you were diagnosed with a serious medical condition.

You sought medical assistance in Australia.

You believe that accessing appropriate medical care within Australia is limited due to the rarity of your condition.

In XX 20XX, you sold a property (Property A) in Australia.

The funds from the sale of Property A, assisted in the cost of travelling overseas to access specialised neurosurgeons.

On XX XX 20XX, you relocated to the Country X on an Entrepreneurs Visa, to seek treatment from a trusted medical team.

In 20XX or 20XX, you purchased a property (Property B) in Australia.

You bought Property B sight unseen as you were residing in the Country X at this time.

Property B became an investment property.

You rented Property B via a real estate agent with the intention to reside in the home when you returned to Australia.

On your return to Australia, you did not reside in Property B, as was originally intended.

On XX XX 20XX you applied for leave to remain in Country X on Human Rights. Leave to remain in Country X was granted on XX XX 20XX and expired XX XX 20XX.

From 20XX until 20XX, you owned and operated a company as per the conditions of your X Visa.

From 20XX until 20XX, you lived in rental properties in Country X.

In XX 20XX, you purchased a property in Country X (Property C).

On XX XX 20XX, your first Country X visa expired.

On XX XX 20XX, you applied for leave to remain in Country X Outside the Rules (Compassionate Grounds). This application was granted on XX XX 20XX.

On XX XX 20XX, you departed the Country X, arriving in Australia on XX XX 20XX.

When you returned to Australia in XX 20XX, your Private Health insurance was re-enacted.

On XX XX 20XX, you travelled to Country Y to attend pre-booked training.

On XX XX 20XX, you returned to Australia from Country Y.

On XX XX 20XX you returned to Country X.

The total duration of your trips to visit Australia during 20XX to 20XX was for:

•         27 days 20XX

•         81 days 20XX

•         23 days 20Xx.

On XX XX 20XX you returned to the Country X.

On XX XX 20XX, your third Country X Resident's Visa expired.

You lodged a claim with the Human Rights Commission (HRC) to remain in Country X on the basis of your private life in Country X and your medical conditions.

On XX XX 20XX, your application to the HRC was refused.

Between XX XX 20XX up until XX XX 20XX you remained 'stateless' because you chose to remain within Country X in order to appeal the HRC decision that denied you the right to reside permanently in Country X.

On XX XX 20XX, the Country X Home Office (Visas and Immigration) confirmed your appeal withdrawn, removed the deportation order and issued a visa to remain in Country X outside of the immigration rules for a period of XX months.

You still own Property C in Country X, and that property still contains your household effects and personal items.

You are considering the option of leasing out your Country X flat.

You maintain bank accounts in Country X.

You have professional and social connections in Country X.

On XX XX 20XX, you returned to Australia.

You currently reside at your property (Property D).

Property D is a small dairy farm, from which you earn assessable income.

You remain very unwell. You are not able to work due to your medical condition.

You maintain bank accounts in Australia.

You did not advise the Australian Electoral Commission or Medicare that you had departed Australia.

From the financial year ending XX XX 20XX up to, and including the financial year ending XX XX 20XX, you have lodged income tax returns declaring that you are a non-resident of Australia for tax purposes.

To enable you to access medical expertise and treatments that can assist and care for your health, you decided to sell your investment property (Property B).

On XX XX 20XX, you entered into a contract of sale on Property B.

On XX XX 20XX, Property B settled.

Relevant legislative provisions

Income Tax Assessment Act 1997 Subsection 6(1)

Income Tax Assessment Act 1997 Section 995-1

Income Tax Assessment Act 1997 Section 104-10

Reasons for decision

Issue 1 - Residency

Question

Are you a resident of Australia for tax purposes prior to XX XX 20XX?

Detailed reasoning

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... 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 resides test is about 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. The ordinary meaning of reside does not require an individual to have a principle or usual place of residence in Australia.

Application to your situation

You are not a resident of Australia under the resides test for the period XX XX 20XX (on the expiry of your Country X Visa) to XX XX 20XX. You became a resident of Australia under tax law, effective XX XX 20XX when you returned to Australia, based on the following:

• In 20XX, you relocated to Country X, and you continued to remain physically present in the Country X until you returned to Australia on XX XX 20XX.
• In 20XX, you acquired and continue to own, a property in Country X which continues to store your household items and personal affects.
• You have demonstrated a settled pattern of living for several years, maintaining a transitory nature of your travel to Australia.
• You have maintained professional and social connections in the Country X.
• We cannot discount the period leading up to your return to Australia, where you remained in Country X without a valid Visa.
• You applied to the HRC for permanent Country X residency, on the basis of your private life in Country X and your medical conditions.
• The issue of being 'stateless' during this period is relevant to immigration laws and you made a conscious decision not to return to Australia prior to XX XX 20XX.
• Immigration law is separate from Australian tax law.
• We have reviewed the facts and circumstances of your scenario, to determine whether you meet the resides test under Australian tax law.
• You have lodged income tax returns and self-assessed as a non-resident of Australia, for the 20XX to the 20XX income years (inclusive).
• Your physical presence during the relevant ruling period was in Country X, whilst you maintained a place of residence in Australia during this period, you did not actually reside in Australia.
• Your behaviour during the time you spent in Australia did not reflect a degree of continuity, routine or habit that is consistent with residing here as your return trips to visit Australia since 20XX were only in duration of 27 days, 81 days and 23 days respectively.

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 Australia and your domicile of origin is Australia.

It is considered that you did not abandon your domicile of origin in Australia and acquire a domicile of choice in Country X. You were not entitled to reside in Country X indefinitely and while living in Country X, you held a visa which was valid until XX 20XX.

Therefore, your domicile is Australia.

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:

•         the intended and actual length of the taxpayer's stay in the overseas country

•         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

•         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

•         whether any residence or place of abode exists in Australia or has been abandoned because of the overseas absence

•         the duration and continuity of the taxpayer's presence in the overseas country

•         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

The Commissioner is satisfied that your permanent place of abode is outside Australia because:

• For X years, commencing in 20XX, you have based your life in Country X.
• From 20XX to 20XX, you lived in rental accommodation in Country X.
• In 20XX, you acquired and lived in your own property.
• You have strong professional and social connections in Country X.
• You applied to the HRC to seek a right to permanently reside in Country X.
• You have established a home in Country X.
• On XX XX 20XX, you returned to Australia to reside.

Therefore, you are not a resident of Australia under the domicile test prior to XX XX 20XX.

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

You have not been present in Australia for 183 days or more during the 20XX, 20XX or 20XX income years. Therefore, you are not a resident under this test.

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

The Commissioner is satisfied that your usual place of abode was outside Australia for the relevant income years based on the following:

• In 20XX, you departed Australia.
• In the 20XX income year, you did not reside in Australia for 183 days.
• In the 20XX income year, you did not reside in Australia for 183 days.
• In the 20XX income year, you did not reside in Australia for 183 days.
• On XX XX 20XX, you returned to Australia, and resumed your Australian residency.

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

The Commissioner is not satisfied that you did intend to take up residence in Australia for the relevant income years because:

• You did not return to Australia at the point that your Country X visa expired.
• You resided in the Country X, living in your Country X property that you own.
• Your priority was to seek permanent residency in Country X for personal health reasons.
• Your visits to Australia during the relevant income years, did not interfere with your continuity of association to Country X.

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 20XX and the 20XX income years. You are a resident of Australia from XX XX 20XX, which is the date that you returned to Australia to reside.

Issue 2 - CGT

Question 2

Can the Commissioner disregard any capital gain or loss you make on the disposal of the investment property that you sold to pay debts related to medical expenses?

Summary

The sale of property is a disposal of a capital gains tax (CGT) asset that results in a CGT event A1 occurring under section 104-10 of the ITAA 1997. The Commissioner does not have the discretion to disregard any capital gain or loss you make on the disposal of an investment property.

Detailed reasoning

Section 104-10 of the ITAA 1997 states that CGT event A1 will happen if you dispose of a CGT asset. A capital gain or loss may be disregarded if the asset was purchased before 20 September 1985 or another exemption is available.

In your case, the property was purchased after 20 September 1985 and the property was always used for income producing purposes. There is no other exemption under the CGT provisions.

The Commissioner does not have the discretion to disregard any capital gain or loss you make due to the disposal of an investment property.

The rental income received by the property is assessable income, therefore the disposal of the property will also be included in your assessable income.

Having considered all the relevant facts, CGT event A1 occurred due to your disposal of the rental property. As there is no exemption from CGT, the normal CGT rules apply to the disposal of the property.

You should note that you are entitled to the 50% CGT discount in relation to the property because you owned it for more than 12 months.