Edited version of private advice

Authorisation Number: 1052234310339

Date of advice: 3 April 2024

Ruling

Subject: CGT - residency

Question 1:

Will you cease to be a resident of Australia for taxation purposes from the date you leave Australia to permanently relocate to the Country X?

Answer:

Yes.

Question 2:

Will any capital gain or capital loss made from the disposal of your shares in Company A, which were granted under a qualifying 'Start-up' Employee Share Scheme, be disregarded where you are a non-resident at the time of disposal of the shares?

Answer:

Yes.

This ruling applies for the following periods:

Income year ending 30 June 20XX

Income year ending 30 June 20XX

Income year ending 30 June 20XX

Income year ending 30 June 20XX

Income year ending 30 June 20XX

Income year ending 30 June 20XX

The scheme commenced on:

1 June 20XX

Relevant facts and circumstances

You were born in, and are a citizen of, Country X.

You travelled to Australia on a Country X passport.

You became a citizen of Australia, maintaining your Country X citizenship.

Your spouse and dependent children accompanied you to Australia and hold dual citizenship in Country X and Australia.

At present, you are a resident of Australia for taxation purposes, living here with your family.

You are currently employed by Company A.

You received a letter of offer from Company A to participate in their employee share scheme (the Plan) which qualified for the ESS start-up concessions.

You were granted options under the Plan for no consideration, with a specified exercise price and vesting schedule for the options.

Your options represented less than 10% of Company A's shares and are not taxable Australian property.

You do not own any property in Australia and currently lease accommodation in Australia, which will be terminated around the time you will depart Australia.

You currently have the following assets in Australia:

•         Investment funds

•         Shares in publicly listed companies on the Australian Stock Exchange

•         Savings in bank accounts

•         Australian superannuation

•         A motor vehicle; and

•         Household effects

You have an Australian driver's licence that you will cancel when you leave Australia.

You will sell your Australian shares when you relocate to Country X and will transfer your cash savings to Country X.

You will ship your personal effects and some of your household effects to Country X and will sell the items that you are not taking prior to leaving Australia.

You will notify the following that you are leaving Australia and will be living in Country X:

•         The Australian banks where you have accounts

•         The Australian Electoral Roll

•         Medicare; and

•         Your Private Health Insurance, with whom you will cancel the insurance.

Your social connections in Australia were through your children's school.

Your spouse is a sole trader who taught language classes in Australia.

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

You and your family will relocate to Country X at the beginning of the ruling period, being Date 1.

You do not have any plans to return to live in Australia or visit during the ruling period.

You will continue your employment duties for Company A remotely from Country X and will not undertake any employment in Australia.

You will enter into a residential lease when you return to Country X after your arrival for you and your family to reside.

You will be a tax resident of Country X after you relocate there.

Your extended family live in Country X.

As your children are still young and need looking after, your spouse may work as a sole trader in Country X, with several of their language tutoring students located in Country X.

Your children will be attending school or day care when you relocate to Country X.

You will have bank accounts and investments in Country X and will buy household effects as needed and a family car.

You have a driver's licence in Country X, which may need to be renewed.

Some of the options granted under Plan will be unexercised when you leave Australia (the Options).

You will exercise the Options while you are overseas, and will sell the resulting shares during the ruling period..

Relevant legislative provisions

Income Tax Assessment Act 1936 subsection 6(1)

Income Tax Assessment Act 1997 Division 855

Income Tax Assessment Act 1997 section 995-1

Income Tax Assessment Act 1997 part 3-1

Income Tax Assessment Act 1997 part 3-3

Reasons for decision

Question 1:

Will you cease to be a resident of Australia for taxation purposes following your permanent relocation to Country X on Date 1?

Resident of Australia for taxation purposes

For tax purposes, you are a resident of Australia if you meet at least one of the following tests. You are not a resident of Australia if you do not meet any of the following tests:

•         The resides test (otherwise known as the ordinary concepts test)

•         The domicile test

•         The 183 day test; or the

•         The Commonwealth superannuation fund test.

Application to your situation

We have considered your circumstances, and conclude that you will not be a resident of Australia from the time you depart Australia at the beginning of the ruling period until the end of the ruling period as follows:

•         You will not be a resident of Australia according to the resides test after you leave Australia on Date 1 as you will have relocated to the Country X where you will be living for the whole of the ruling period.

•         You do not meet the domicile test because your domicile is Country X and the Commissioner is satisfied that your permanent place of abode will be outside of Australia from Date 1 until the end of the ruling period.

•         Although you will spend more than 183 days in Australia during the first income year in the ruling period, the Commissioner is satisfied that from Date 1:

•                    your usual place of abode will be outside of Australia from when you relocate to Country X until the end of the ruling period: and

•                    you have no intention of taking up residence here again.

You will not be a resident under this test for the remaining income years in the ruling period as you will not be present in Australia for more than 183 days in any of those income years and the Commissioner is satisfied that:

•                    your usual place of abode will be outside of Australia during those income years; and

•                    you have no intention of taking up residence in Australia again during those income years.

•         You will not fulfill the requirements of the Commonwealth Superannuation test.

Therefore, as you have not met any of the four residency tests during the ruling period after you leave Australia on Date 1, you will not be viewed as a resident of Australia from the time you leave Australia until the end of the ruling period.

Question 2:

Will any capital gain or capital loss made from the disposal of your shares in Company A which were granted under a qualifying 'Start-up' Employee Share Scheme be disregarded where you are a non-resident at the time of disposal of the shares?

Capital gains and foreign residents

Under the rules in Division 855 of the ITAA 1997, a foreign resident is only subject to CGT in Australia on 'taxable Australian property'.

Under section 855-15 of the ITAA 1997, taxable Australian property includes direct or indirect interests in Australian real property, CGT assets used in carrying on a business in Australia and mining, quarrying or prospecting rights to minerals, petroleum or quarry materials situated in Australia.

However, section 855-10 of the ITAA 1997 outlines that a capital gain or loss from a CGT event is disregarded if you are a foreign resident just before the CGT event happens and the CGT event happens in relation to a CGT asset that is not taxable Australian property.

Application to your situation

As outlined above, you will not be an Australian resident for taxation purposes after you leave Australia from Date 1 until the end of the ruling period.

When you leave Australia, you will hold unexercised options granted under the Plan, being the Options.

The resulting shares you will receive when you exercise the Options while you are overseas will not be taxable Australian property because they do not fall into any of the five categories set out in the table in section 855-15 of the ITAA 1997.

As the resulting shares will not be taxable Australian property, and you will be a foreign resident when they are sold during the ruling period, you will be able to disregard any capital gain or capital loss made on their disposal made on their disposal under section 855-10 of the ITAA 1997.