Edited version of private advice

Authorisation Number: 1052343205369

Date of advice: 13 December 2024

Ruling

Subject: Residency

Question 1

Were you a resident of Australia for the relevant income year?

Answer

No.

Question 2

Are you excepted from the non-commercial loss provisions in Division 35 of the Income Tax Assessment Act 1997 (ITAA 1997) pursuant to subsection 35-10(4) which will allow you to offset your loss from your business in Australia in the relevant financial year against your income for that year regardless of your residency status?

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 Australian and Country Z citizen.

You were born in Australia and have been living continuously in Country Z for several years.

You returned to Australia for family reasons.

You intended to remain in Australia for a number of months.

While you were absent from Country Z you put your personal effects into storage, sold your car and rented you Country Z apartment out. Your apartment was rented out for a number of months.

You had your mail redirected to friends overseas while you were away.

You stayed with your parents while you were in Australia.

You have Australian bank accounts.

You had previously been carrying on a professional arts business in Country Z.

You have reported your professional activities as business activities to Country Z authority.

You made a net business loss for taxation purposes for each of the relevant years.

You carried on a business as a professional as described in the appropriate Taxation Ruling in Australia in the relevant financial year.

You have a number of qualifications related to your profession.

You keep your qualifications and skills up to date by taking short courses or workshops delivered by other professionals and organisations.

You are a member of a number of professional associations:

In your practice you undertake commissions for your services.

You promote your products to the public through your website, social media, Etsy, and stalls.

This promotion helps you build your reputation.

You have sold your products through various means including local markets and stalls.

The people who purchase your products are members of the public, friends, and family.

You price your products on the cost of creating and presenting them, including sales fees and a markup.

You commenced your professional activity in Australia several weeks after returning to Australia.

You believed that with your skills and experience, the success of other professionals in the area where you were living, and the work you were prepared to put into this activity in Australia that you could make a profit from this activity.

You spent on average several hours a week on your activity while in Australia.

From the date you commenced your professional activity in Australia you:

•                     Undertook ATO webinars on self-employment,

•                     Made contact with Business XXXX and attended their short course on social media,

•                     Created a business plan based on the Business XXXX template,

•                     Made contact with local materials suppliers,

•                     Set up an online shop for the sales of your products,

•                     Advertised your online shop on social media,

•                     Maintained a social media presence through your website and Instagram.

You also took on casual and part time work to supplement your income in this period.

Tax was withheld from your payments for the work you undertook, and your employers paid superannuation under the super guarantee arrangements.

You also received a small amount of interest from bank accounts.

You departed from Australia in the following year and arrived in Country Z a day later.

You received payment for your products through bank transfers or via PayPal.

You set up a dedicated business bank account for your professional art activity.

You have kept copies of invoices and bank statements for your professional activity through this period and maintained a spreadsheet of relevant information including a travel diary, your activity, and the hours you spent on this activity.

You made a loss from your professional art activity in Australia in the relevant financial year.

You only had limited income from your self-employed activity in Australia. There were no expenses associated with this income in that financial year.

You have returned to Country Z permanently and have no intention to return to Australia.

You do not have a spouse.

You do not have any dependants.

You have strong ties socially with Country Z through your work and church.

You have family and friends in Australia and to a lesser degree social ties both with work and church in Australia.

You are not eligible to contribute to the PSS or the CSS Commonwealth superannuation funds.

Relevant legislative provisions

Income Tax Assessment Act 1936 subsection 6(1)

Income Tax Assessment Act 1997 subsection 35-10

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

Reasons for decision

Question 1- Residency

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 tests.

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

•                     The domicile test

•                     The 183 day test

•                     The Commonwealth superannuation fund test

We have considered your circumstances, and conclude that you are not a resident of Australia for tax purposes for the relevant year as follows.

You are not a resident of Australia according to the resides test.

You were here to spend time with your family due to health issues experienced by your sibling.

You did not intend on returning to Australia on a permanent basis.

You live and work in Country Z and have done so for a number of years.

Although you are a citizen of Australia you have dual citizenship of Australia and Country Z but your permanent place of abode is in Country Z as you have lived there for a number of years and have a flat which has been your main residence for several years.

You were living with your parents for the duration of your stay in Australia.

Although you were in Australia for the whole of the relevant income year, we consider you did not intend on taking up residency in Australia and your usual place of abode is in Country Z.

You do not fulfil the requirements of the Commonwealth superannuation fund test.

In summary, you were not a resident of Australia for tax purposes for the relevant year. For more information about residency, see Taxation Ruling TR 2023/1 Income tax: residency tests for individuals.

Question 2 - Business losses

Division 35 of the ITAA 1997 prevents losses from a non-commercial business activity carried out by an individual taxpayer from being offset against other assessable income in the year in which the loss is incurred, unless:

•                     the individual meets the income requirement and the business activity satisfies one of the 4 stipulated tests (paragraph 35-10(1)(a));

•                     an exception in subsection 35-10(4) applies; or

•                     the Commissioner exercises the discretion in subsection 35-55(1) for the business activity for one or more income years.

Where an individual has a loss from a professional business in a year of income, and in that year the total of their assessable income from sources unrelated to that business activity (excluding any net capital gain) is less than $40,000, subsection 35-10(4) of the ITAA 1997 provides that the rules in subsections 35-10(2), (2A) or (2B) will not apply in relation to that business activity.

The exception means that you are not required to meet any of the four tests, or have the Commissioner exercise his discretion, in order for you to offset your business losses against your other income.

A professional business is defined for the purposes of the provisions of Division 35 of the ITAA 1997 as a business you carry on as the creator of various products.

You were engaged in a professional business in Australia in the relevant financial year and your other assessable income for that year in Australia was less than $40,000. The exception in subsection 35-10(4) of the ITAA 1997 will apply to your professional activity and you can offset your business loss against your other income in Australia for the relevant financial year.

This exception applies regardless of your residency status.