Edited version of private advice

Authorisation Number: 1052298571389

Date of advice: 2 September 2024

Ruling

Subject: CGT - main residence exemption

Question 1

Are you a resident of Australia for tax purposes?

Answer

Yes.

Question 2

Are you eligible for a full main residence exemption on disposal of the property?

Answer

Yes.

This ruling applies for the following period:

Year ended 30 June 20XX

The scheme commenced on:

1 July 20XX

Relevant facts and circumstances

You are a dual citizen of XX and XX.

You were born in XX which grants you a right to reside in XX.

You became a citizen of Australia in 20XX.

In XX 20XX you purchased a property at XX XX, XX, XX. The property was always your main residence and never used to produce income.

You do not own any other property either in Australia or overseas.

On XX XX 20XX you and your two young children left Australia for XX. At the time you were experiencing marital difficulties and wished to spend time with your family.

Your spouse remained living in the property.

You are living in rented accommodation in XX.

In XX 20XX you underwent a medical procedure in XX.

In 20XX you and your spouse underwent mediation resulting in agreement that the property be sold to repay a loan from your ex-spouse's family and determination of division between the parties of any capital gain.

Your spouse was responsible for loan payments from XX 20XX to XX 20XX.Thereafter, loan repayments are to be shared equally between you and your ex-spouse until sale of the property.

In XX 20XX you were diagnosed with an illness.

In XX 20XX you underwent surgery in XX.

In XX 20XX you and your spouse divorced.

In XX 20XX you underwent further surgery.

You are currently undergoing post-surgery treatment.

You intend to return to Australia on a permanent basis once your health allows and your medical treatment is completed.

You work for a company in XX.

You have employment income in Australia working remotely as a tutor.

You have had to reduce your working hours due to your medical condition.

You have lodged your income tax returns in Australia as a resident.

You lodge tax returns in XX as you have employment income.

You have family ties in XX.

Your children are attending preschool in XX.

You state on your incoming and outgoing passenger cards you are an Australian resident and list your Australian address.

You hold drivers' licences in Australia and XX.

You advised the Australian Electoral Commission you were going overseas.

You did not inform Medicare you were going overseas as your stay in XX was only expected to be temporary.

You have an Australian bank account.

You have a XX bank account.

In Australia, you have social and professional connections, including friendship, community involvement, your children's schooling, and your ongoing employment in Australia.

You have not advised any Australian financial institutions that you are a foreign resident for non-resident withholding purposes.

You are not a member of the Public Sector Superannuation Scheme (PSS) nor are you an eligible employee in respect of the Commonwealth Superannuation Scheme (CSS).

On XX XX 20XX you were issued a foreign resident capital gains withholding clearance certificate on the basis that you are a resident of Australia for tax purposes based on your lodgement of returns to XX XX 20XX as a resident.

The property was listed for sale on XX XX 20XX and sold on XX XX 20XX.

Relevant legislative provisions

Income Tax Assessment Act 1997 subsection 995-1

Income Tax Assessment Act 1936 subsection 6(1)

Income Tax Assessment Act 1997 section 118-110

Income Tax Assessment Act 1997 section 118-145

Reasons for decision

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 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.

While physical presence is an important consideration, physical absence does not necessarily result in non-residence. It is well established in case law that a person does not cease to be a resident simply by absence; rather, the question is whether they have maintained a 'continuity of association' with Australia which is in turn established by considering their other connections to Australia.

Application to your situation

You are a resident of Australia under the resides test for the period 1 July 20XX to 30 June 20XX based on the following:

•         you intend to return to Australia on a permanent basis once your health allows and your medical treatment is completed

•         you have social and professional connections in Australia, and ongoing employment in Australia.

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.

Application to your situation

In your case, you were born in XX and your domicile of origin is XX. You immigrated to Australia and became an Australian citizen in 20XX.

It is considered you abandoned your domicile of origin and acquired a domicile of choice in Australia in 20XX and will retain this while you are temporarily in XX.

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 not satisfied that your permanent place of abode is outside of Australia because you intend to return here once your health allows and your medical treatment is complete, and apart from the sale of your house which was legally enforced, you have not cut your ties to Australia to say you have definitely abandoned, in a permanent way, living in Australia.

Therefore, you are 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, 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 income year. Therefore, you are not a resident under this test.

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

You satisfy the resides and domicile tests of residency and so are a resident of Australia for income tax purposes for the year ended 30 June 20XX.

Main residence exemption

Under section 118-110 of the ITAA 1997, your main residence (your home) is exempt from CGT if you are an Australian resident and the dwelling:

•         has been the home of you, your partner and other dependants for the whole period you have owned it

•         has not been used to produce income

•         is on land of 2 hectares or less.

If you meet these conditions, you do not pay tax on any capital gain when you sell your home and you ignore any capital loss.

If you move out of your home and rent it out, you can continue treating your former home as your main residence for up to x years.

For CGT purposes you can continue treating a property as your main residence indefinitely if it is not used to produce income.

You make this choice when preparing your income tax return for the income year in which you sold the house. If you make the choice, you cannot treat any other dwelling as your main residence for the same period.