Edited version of private advice

Authorisation Number: 1052375725443

Date of advice: 25 March 2025

Ruling

Subject:Residency

Question 1

Are you a resident of Australia for tax purposes for the income year ending XX XXX 20XX?

Answer 1

No. After considering your circumstances as a whole and the residency tests, you are not a resident of Australia for tax purposes.

Question 2

Are you eligible to apply the main residence exemption for capital gains tax (CGT) purposes and fully disregard any capital gain or loss made on the disposal of your 50% share of the property at address A to your daughter person A?

Answer 2

No. As a foreign resident for tax purposes you are not able to apply the main residence exemption and so cannot disregard any capital gain or loss made on the disposal of your 50% share of the property.

This ruling applies for the following period:

Year ending XX XXX 20XX.

The scheme commenced on:

XX XXX 20XX.

Relevant facts and circumstances

You were born in country A.

You are a citizen of country A.

Your home address in country A is (address B) where you live with your spouse.

You were granted a XXX visa in XXX 20XX.

Together with your child's spouse you purchased the property at address A, having an equal share each of 50% in the property.

Your adult child and their family moved into the property, and you stay there with them when in Australia.

From 20XX to XX XXX 20XX, you have travelled back and forth between country A and Australia.

In Australia you stayed with your child and helped with the family.

In country A you stayed with and cared for your spouse who suffers from a medical condition.

Your spouse has remained in country A during this time.

In this time, you have come to Australia a total of X times, returning to country A on X occasions.

From 20XX up to your last departure for country A on XX XXX 20XX, your average time spent here in Australia was a duration of X days.

Your average time spent in country A for each visit there during this time was X days.

You last departure date to country A was XX XXX 20XX which was just before the Covid-19 pandemic began.

Travel restrictions during the pandemic meant you could not travel from country A back to Australia for a period of time.

You remained in country A from XX XXX 20XX until your child brought you over to Australia on XX XXX 20XX.

During this time in country A you developed medical and mental health conditions.

It is during this most recent trip to Australia that you transferred your 50% share in the property at address A to your child on XX XXX 20XX.

You are currently in Australia with plans to return to country A on XX XXX 20XX.

You have never lodged a tax return in Australia, only recently obtaining an Australian Tax File Number (TFN) on XX XXX 20XX.

Relevant legislative provisions

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

Income Tax Assessment Act 1936 subsection 6(1)

Income Tax Assessment Act 1997 subsection 118-110(1)

Income Tax Assessment Act 1997 subsection 118-110(3)

Reasons for decision

These reasons for decision accompany the Notice of private ruling for you.

This is to explain how we reached our decision. This is not part of the private ruling.

Question 1

Are you a resident of Australia for tax purposes for the income year ending XX XXX 20XX?

Answer

No. You are not a resident of Australia for tax purposes as you do not meet any of the four residency tests.

Detailed reasoning

For tax purposes, whether you are a resident of Australia is defined by subsection 6(1) of the Income Tax Assessment Act 1936 (ITAA 1936).

The definition has four tests to determine your residency for income tax purposes. These tests are:

•          the resides test

•          the domicile test

•          the 183-day test, and

•          the Commonwealth superannuation fund test.

It is sufficient for you to be a resident under one of these tests to be a resident for tax purposes.

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 resides test is the primary test of tax residency for an individual. If you reside in Australia according to the ordinary meaning of the word resides, you are considered an Australian resident for tax purposes. The Macquarie Dictionary defines 'resides' as 'to dwell permanently or for a considerable time, to have one's abode for a time'.

When considering whether a taxpayer is a resident under the 'resides' test, we consider several factors:

•          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.

No single factor is decisive, and the weight given to each factor depends on a taxpayer's individual circumstances.

Because the resides test is about whether an individual resides in Australia, the factors listed above focus on the taxpayer's connection to Australia. Having a connection to 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 circumstances

You are not a resident of Australia under the resides test for the 20XX income year based on the following:

•          you spend the majority of your time in country A

•          you were in country A from XX XXX 20XX until your child brought you over to Australia on XX XXX 20XX

•          your visits to Australia prior to 20XX were typically short in duration and were more in the nature of a holiday with your child and family

•          your spouse has remained in country A

•          you and your spouse have maintained a home in country A

•          you have never lodged a tax return in Australia and have only recently obtained a TFN.

You may still be a resident of Australia if you meet the conditions of the other tests.

The domicile test

Under the domicile test, if your domicile is in Australia, you are a resident of 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 circumstances

You were born in country A and your domicile of origin is country A.

We consider that you have not changed your domicile to Australia as you have not changed your home to Australia with the intent of making it permanent.

Therefore, you are not a resident under this test.

The 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:

•          their usual place of abode is outside of Australia, and

•          they do not intend to take up residence in Australia.

Application to your circumstances

You will not be in Australia for than 183 days in the 20XX income year.

Therefore, you are not a resident under this test.

The Commonwealth 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 child under 16, of such a person.

Application to your circumstances

You are not a contributing member of either the Public Sector Superannuation Scheme (PSS) or the Commonwealth Superannuation Scheme (CSS), nor are you the spouse of a contributing member, or the child of a contributing member.

Therefore, you are not a resident under this test.

Conclusion

As you do not satisfy any of the four residency tests, you are not a resident of Australia for taxation purposes for the 20XX income year.

Question 2

Are you eligible to apply the main residence exemption for capital gains tax purposes and fully disregard any capital gain or loss made on the transfer of your 50% share of the property at address A to your child.

Answer

No.

Summary

You are a foreign resident for tax purposes and as such cannot apply the main residence exemption with respect to any capital gains or loss made on the disposal of your 50% share in the property.

Detailed reasoning

Section 118-110 of the ITAA 1997 provides that you can disregard a capital gain or capital loss made from a CGT event that happens to a dwelling that is your main residence. To qualify for full exemption, the dwelling must have been your main residence for the whole period you owned it, the ownership period, and must not have been used to produce assessable income.

If you are a foreign resident, you are not entitled to the main residence exemption from CGT for property sold after 30 June 2020, unless you satisfy the requirements of the life events test.

When you dispose of your residential property, you satisfy the requirements of the life events test if both of the following are true:

•          you were a foreign resident for tax purposes for a continuous period of 6 years or less

•          during that period, one of the following occurred

-          your spouse or your child under 18 had a terminal medical condition

-          spouse or your child under 18 died

-          GT event happened because of a formal agreement following the breakdown of your marriage or relationship.

Section 115-1 of the ITAA 1997 also allows for a reduction in a capital gain by 50% where you purchased the dwelling after 21 September 1999, and you have owned it for at least 12 months. However, subsection 115-102(2) states that this discount is not available where, you disposed of the CGT asset after 8 May 2012, and you were a foreign resident at the time of the disposal.

Application to your circumstances

You were a foreign resident who did not satisfy the life events test at the time of the CGT event (transfer of your 50% share) and as such you are not eligible to apply the main residence exemption.

In any event, it is considered that your main residence is in country A where you live with your spouse.

You are also not able to apply the 50% discount to any capital gain where you have owned your share of the property for more than X months.

You will need to report any capital gain or loss in your income tax return. The date of the CGT event is the date the contract was signed.

The market value is usually the sale price if this has been negotiated at arm's length. Where the sale is a non-arm's length sale, the purchaser will need to seek a professional valuation.