Private ruling: International - Residency and ESS
Date of advice: 18 August 2025
Published: 20 October 2025
Ruling period: Year ended 30 June 20XX | Year ended 30 June 20XX | Year ended 30 June 20XX | Year ended 30 June 20XX
Date scheme commenced: XX XXXX 20XX

Ruling: Q1: Will you cease to be a tax resident of Australia following your permanent relocation to Country A? | A1: Yes. | Q2: Will any capital gain (or 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? | A2: Yes.

Relevant facts and circumstances: You were born and are a citizen of Country A. Your parents and extended family live in Country A. You do not have a spouse or children. In XXXX 20XX, you relocated to Australia on a temporary visa. On XX XXXX 20XX, you received your permanent Australian visa. On XX XXXX 20XX, you commenced employment with Company A in Australia. On XX XXXX 20XX, you received a letter of offer from Company A to participate in the Employee Option Plan. The Employee Share Options granted to you qualified for the 'Start-Up' Employee Share Scheme Concession (the Plan) under Section 83A-33 of the Income Tax Assessment Act 1997 (ITAA 1997). On XX XXXX 20XX, you received a Notice of Stock Option Grant to confirm that you had been granted options to purchase ordinary shares in the Company A. On XX XXXX 20XX, you received a Notice of Stock Option Grant to confirm that you had been granted additional options to purchase ordinary shares in the Company A. You were not required to pay any consideration in relation to your acceptance of the offer or to Company A for issuing the Options to you. You received a total of XX Company A Options under the Plan. Your options represent less than XX% of the Company's shares. On XX XXXX 20XX, you received Australian citizenship. In XXXX 20XX, you terminated your lease in Australia. On XX XXXX 20XX, you ceased employment with Company A. On XX XXXX 20XX, you permanently departed Australia to return to Country A. Your intention is to reside in Country A going forward. Prior to departing Australia, you: • Notified your Australian banks that you are now a non-resident. • Advised the Australian Electoral Commission that you are residing overseas. • Informed Medicare that you are residing overseas. • Cancelled your Australian Private Health Insurance. • Sold your Australian belongings. • Ceased your membership of social and sporting clubs in Australia. You will live in one of your XX properties you solely own in Country A. You do not own residential property in Australia. You currently own the following Australia assets: • Australian ASX listed shares • Cash savings in Australian banks. • Australian Superannuation. • You currently own the following overseas assets: • 3 properties in Country A. • Overseas bank account • Overseas investments You are registered with the Country A tax authority. All Options under the Plan are now fully vested but unexercised. The remaining unexercised Options held by you are XX. The exercise price in respect of the options is $XX per Option. You intend to exercise the Options and sell the shares under the Plan after your departure date. You are currently unemployed. You will seek employment outside of Australia and carry out your employment from outside of Australia going forward. You intend to sell your Australia shares and transfer the majority of your cash from Australian bank accounts after you have settled in Country A. You are not a member of the Public Sector Superannuation Scheme (PSS) which was established under the Superannuation Act 1990 or an eligible employee in respect of the Commonwealth Superannuation Scheme (CSS) which was established under the Superannuation Act 1976 .

Relevant legislative provisions: Income Tax Assessment Act 1936 subsection 6(1) | Income Tax Assessment Act 1997 subsection 995-1(1) | Income Tax Assessment Act 1997 Division 855

Reasons for decision: 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: | Detailed Reasoning - 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. | Detailed Reasoning - Application to your situation: You are not a resident of Australia under the resides test from your departure date based on the following: • Physical presence - You will not be physically in Australia after your departure date. • Intention or purpose - You intend to depart Australia permanently. • Behaviour - Prior to departing Australia, you: i) Notified your Australian banks that you are now a non-resident. ii) Advised the Australian Electoral Commission that you are residing overseas. iii) Informed Medicare that you are residing overseas. iv) Cancelled your Australian Private Health Insurance. v) Sold your Australian belongings. • Family or employment ties - You ceased employment in Australia. - Your family lives in Country A. - You intend to gain employment in Country A. • Maintenance and location of assets - You currently own the following Australia assets: i) Australian ASX listed shares ii) Cash savings in Australian banks iii) Australian Superannuation. - You currently own the following overseas assets: i) XX properties in Country A. ii) Overseas bank account iii) Overseas investments • Social connections - You cancelled your membership of social and sporting clubs in Australia. 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). | Detailed Reasoning - 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. | Detailed Reasoning - 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. | Detailed Reasoning - Application to your situation: In your case, you were born in Country A and your domicile of origin is Country A. You immigrated to Australia on a temporary visa in XXXX 20XX and became an Australian citizen on XX XXXX 20XX. It is considered that you abandoned your domicile of origin in Country A and acquired a domicile of choice in Australia. Further, it is too early to determine whether you have abandoned your Australian domicile and reacquired a domicile in Country A. Therefore, your domicile is Australia. | Detailed Reasoning - 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. | Detailed Reasoning - Application to your situation: The Commissioner is satisfied that your permanent place of abode is outside Australia because: • You have permanently departed Australia. • You own XX properties overseas. • You have established a home overseas. • You do not own residential property in Australia and not have any active rental agreements. Therefore, you are not a resident of Australia under the domicile test. | Detailed Reasoning - 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. | Detailed Reasoning - Application to your situation: You have been in Australia for 183 days or more in the 20XX income year. Therefore, you will be a resident under this test unless the Commissioner is satisfied that your usual place of abode was outside Australia, and you do not have an intention to take up residence in Australia. The Commissioner is satisfied that both: • your usual place of abode is outside Australia, and • you do not intend to take up residence in Australia. Therefore, you are not a resident under this test. | Detailed Reasoning - 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. | Detailed Reasoning - 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. | Detailed Reasoning - Conclusion: As you do not satisfy any of the four tests of residency from your departure date, you are not a resident of Australia for income tax purposes for the years ended 30 June 20XX, 20XX, 20XX and 20XX. | Detailed Reasoning - Capital gains and foreign residents: Generally, a discount you receive on shares, rights or stapled securities you acquire under an employee share scheme (ESS) is included in your assessable income when you acquire the beneficial interest in those shares, rights or securities. However, subdivision 83A-B of the ITAA 1997 provides concessions for 'start-up' companies if certain conditions laid out in the subdivision are met. Under the start-up rules, the discount on eligible ESS interests is not taxed under the ESS regime; instead, any gain or loss on disposal of the rights or shares is assessed under the capital gains tax regime. When an ESS option is exercised, CGT event C2 occurs but may be disregarded under subsection 134-1(4) of the ITAA 1997 (subject to certain conditions). When working out if the 50% CGT discount applies, the period of ownership of a share acquired on exercise of a right is taken to have started when the right was acquired (subsection 115-30(1)(9A) of the ITAA 1997). In your case, you held options under the Plan when you ceased to be a tax resident of Australia. CGT event I1 happens when a taxpayer stops being a tax resident of Australia. The taxpayer is required to work out if they have made a capital gain or a capital loss for each CGT asset owned just before the time of the event, ie for each asset owned just before the taxpayer ceased to be an Australian resident - apart from assets that are taxable Australian property (section 104-160 of the ITAA 1997). However, an individual can choose to disregard making a capital gain or loss from the CGT assets covered by CGT event I1 (the choice can only be made for all assets owned). If he or she so chooses, each of those assets is taken to be taxable Australian property until the earlier of: a) a CGT event happening in relation to the asset, and b) the individual again becoming an Australian resident (section 104-165 of the ITAA 1997). The choice is made when lodging the income tax return for the relevant income year. 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. | Detailed Reasoning - Application to your situation: As outlined above, you will not be an Australian resident for taxation purposes after you leave Australia from XX XXXX 20XX. 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.