Private ruling: CGT - sale of main residence - foreign resident at sale - life events test
Date of advice: 12 May 2022
Published: July 2022
Ruling period: 2017-18 income year | 2018-19 income year | 2021-22 income year | 2022-23 income year
Date scheme commenced: 1 July 2017

Ruling: Question 1: Is the Taxpayer a resident of Australia under subsection 6(1) of the Income Tax Assessment Act 1936 during the period Date 1 to Date 3? | Answer: Yes. | Question 2: Will any capital gain or loss that the Taxpayer makes from the sale of the Property be disregarded? | Answer: Yes.

Relevant facts and circumstances: The Taxpayer is an Australian citizen, born and raised in Australia. The Taxpayer's parents, partner and child all live in Australia. The Taxpayer and the ex-spouse jointly own a residential property (the Property). The Property has been the family home and the Taxpayer's main residence for capital gains purposes since purchase (either due to residing there or as a result of making relevant choices). The Property has not been used for income producing purposes. The Taxpayer started working overseas some years ago as they were not able to find a suitable job here in Australia. The Taxpayer returned to Australia on Date 1 with the intention of finding a job and settling back in Australia. With not much success, they travelled out of Australia intermittently for overseas job interviews or short-term overseas contract positions. The Taxpayer would stay in temporary accommodation while overseas in AirBNB rooms, hotel or with friends. Specifically: The Taxpayer returned to the Property on Date 1 and remained there for some months. The Taxpayer travelled overseas for a job interview and stayed at an AirBNB room for about a week. The Taxpayer returned to the Property and remained there for about a month. The Taxpayer travelled overseas for job interviews and stayed at an AirBNB room for about a week. The Taxpayer returned to the Property and remained there for about three weeks. The Taxpayer travelled overseas for job interviews. The Taxpayer then took a two-week contract. The Taxpayer mainly stayed at a Hostel until leaving. The Taxpayer returned to the Property for some months and remained there until Date 2. The Taxpayer travelled overseas and stayed with friends for a couple of days. The Taxpayer travelled to another country for a job interview and then performed project work for five weeks. The Taxpayer stayed at a Hostel. The Taxpayer travelled to another country and stayed with friends. The Taxpayer travelled to again for job interviews and stayed at the same Hostel. The Taxpayer travelled to another country and stayed with friends. The Taxpayer travelled to another country for a job interview and stayed with a friend. The Taxpayer travelled to another country for a job interview and performed project work. The Taxpayer also received a job offer which was to start the day after Date 3. He stayed at an Apartment until then. After obtaining a two-year job contract overseas, the Taxpayer then settled into a different Apartment on the day after Date 3. From that date, the Taxpayer wanted to return to Australia but had difficulty doing so due to various COVID travel restrictions. The Taxpayer's marriage broke down during this period. The marriage breakdown was discussed and verbally agreed to during the period preceding Date 3. The Taxpayer and the ex-spouse are currently discussing what will happen to the Property. They intend selling the Property. They will approach the Family Court and receive a consent order once the details are worked out. The Property will be sold at the soonest possible time after the consent order has been given. The Property will continue to be the Taxpayer's main residence for CGT purposes (either due to residing there or as a result of making relevant choices) until the settlement of the sale of the Property is completed.

Relevant legislative provisions: Income Tax Assessment Act 1936 Subsection 6(1) | Income Tax Assessment Act 1997 Part 3-1 | Income Tax Assessment Act 1997 Section 118-110 | Income Tax Assessment Act 1997 Section 126-5

Reasons for decision: Summary: The Taxpayer is a resident of Australia under subsection 6(1) of the Income Tax Assessment Act 1936 (ITAA 1936) during the period Date 1 to Date 3. | Detailed Reasoning - Detailed reasoning: 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 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 • the domicile test • the 183 day test, and • the superannuation test. The primary test for deciding the residency status of an individual is whether they reside 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. | Detailed Reasoning - The resides test: The ordinary meaning of the word 'reside', according to the Macquarie Dictionary , 2001, rev. 3 rd edition, The Macquarie Library Pty Ltd, NSW, is 'to dwell permanently or for a considerable time; having one's abode for a time', and according to the Compact Edition of the Oxford English Dictionary (1987), is 'to dwell permanently, or for a considerable time, to have one's settled or usual abode, to live in or at a particular place'. These definitions have been highlighted in cases as being definitive observations of the meaning of resides (see Viscount LC in Levene v Commissioners of Inland Revenue [1928] AC 217 and Logan J in Stockton v Federal Commissioner of Taxation [2019] FCA 1679). 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... [W]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. Case law decisions have considered the following factors in relation to whether the Taxpayer was a resident under the 'resides' test: • Physical presence • Intention or purpose of presence • Family and business/employment ties • Maintenance and location of assets, and • Social and living arrangements These factors are similar to those which the Commissioner has said are relevant in determining the residency status of individuals in Taxation Ruling IT 2650 Residency - Permanent place of abode outside Australia (IT 2650) and Taxation Ruling TR 98/ 17 Income tax: residency status of individuals entering Australia . It is important to note that not one single factor is decisive, and the weight given to each factor depends on each individual's circumstances. We consider that the Taxpayer's circumstances are consistent with residing in Australia between Date 1 and Date 2. This is because: • The Property was the Taxpayer's family home. • The Taxpayer abandoned the previous accommodation that had used while working overseas just before Date 1 • The Taxpayer physically lived at the Property for the majority of this period • The Taxpayer was only physically absent from Australia for less than 20% of this period • Each absence was of short duration and at a short stay accommodation place The Taxpayer was a resident of Australia under the resides test during the period Date 1 to Date 2. We consider that the Taxpayer's circumstances are not consistent with residing in Australia between Date 2 and Date 3. This is because: • The Taxpayer did not set foot in Australia during this period • The Taxpayer was searching for jobs outside Australia • The Taxpayer's marriage broke down during this period severing this link to Australia • The Taxpayer has not identified any other factors that would indicate that the Taxpayer was residing in Australia during this period The Taxpayer was not a resident of Australia under the resides test during the period Date 2 to Date 3. | Detailed Reasoning - Domicile test: Under the domicile test, the Taxpayer is a resident of Australia if the domicile is in Australia unless the Commissioner is satisfied that the Taxpayer's permanent place of abode is outside Australia. | Detailed Reasoning - Domicile: Whether the Taxpayer's domicile is Australia is determined by the Domicile Act 1982 and the common law rules on domicile. An individual's domicile is their domicile of origin (usually the domicile of their father at the time of their birth) unless they have acquired a domicile of choice elsewhere. To acquire a domicile of choice of a particular country they must be lawfully present there and must hold the positive intention to make that country their home indefinitely. A domicile continues until they acquire a different domicile. Whether an individual's domicile has changed depends on an objective consideration of all relevant facts. In the Taxpayer's case, the Taxpayer was born in Australia and has a domicile of origin is Australia. It is considered that the Taxpayer has not abandoned this domicile of origin in Australia and acquired a domicile of choice in any other country. The Taxpayer was not entitled to reside in any other country indefinitely. | Detailed Reasoning - Permanent place of abode: If an individual has an Australian domicile, they are an Australian resident unless the Commissioner is satisfied that their 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 courts have held that the phrase 'permanent place of abode' calls for a consideration of the town or country where a person is located. 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 an individual has his or her permanent place of abode outside Australia are: (a) whether the individual has definitely abandoned, in a permanent way, living in Australia; and (b) whether the individual is living permanently in a specific country. Paragraph 23 of IT 2650 sets out the following factors which are used by the Commissioner in reaching a state of satisfaction as to an individual's permanent place of abode: (a) the intended and actual length of the individual's stay in the overseas country (b) whether the individual 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 (c) whether the individual 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 (d) whether any residence or place of abode exists in Australia or has been abandoned because of the overseas absence (e) the duration and continuity of the individual's presence in the overseas country; and (f) the durability of association that the individual 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 individual'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. The Commissioner is not satisfied that the Taxpayer's permanent place of abode is outside Australia. This takes into account that: • The Taxpayer resided in Australia between Date 1 and Date 2 and was physically present in Australia for the majority of this period • The Taxpayer was living an unsettled life between Date 2 and Date 3 seeking job interviews in various foreign countries and constantly moving The Taxpayer is a resident of Australia under the domicile test outlined in the definition of 'resident' in subsection 6(1) of the ITAA 1936. | Detailed Reasoning - 183-day test: Where an individual is present in Australia for 183 days during the year of income the individual will be a resident, unless the Commissioner is satisfied that the individual's usual place of abode is outside Australia and the individual does not intend to take up residence in Australia. The Taxpayer was not been present in Australia for 183 days or more during the 2018-19 income year. The Taxpayer is not a resident under this test for that income year. The Taxpayer has been in Australia for 183 days or more in the 2017-18 income year. We now need to consider whether we are satisfied that, during the 2017-18 income year, the Taxpayer's usual place of abode was outside Australia and the intention was not to take up residence in Australia. In the context of the 183-day test, an individual's usual place of abode can include both a dwelling or a country where the person usually resides. An individual can have only one usual place of abode under the 183-day test. However, it is also possible that an individual does not have a usual place of abode. This is the individual who merely travels through various countries without developing any strong connections. If an individual has places of abode both inside and outside Australia, then a comparison may need to be made to determine which is their usual place of abode. When comparing two places of abode of a particular individual, it is necessary to examine the nature and quality of the use which the individual makes of each particular place of abode. It may then be possible to determine which is the usual one, as distinct from the other or others which, while they may be places of abode, are not properly characterised as the individual's usual place of abode (Emmett J at [78] in Federal Commissioner of Taxation v Executors of the Estate of Subrahmanyam [2001] FCA 1836). To determine whether the Taxpayer intended to take up residence in Australia, we look at evidence of relevant objective facts. Based on the Taxpayer's circumstances, the Commissioner is not satisfied that their usual place of abode was outside Australia for the relevant income year [s] and that they did not intend to reside in Australia. In respect of the usual place of abode this takes into account that the Taxpayer was returning to the family home in Australia and physically resided there for the whole of the relevant period (except for two weeks). In respect of the intention to take up residence this takes into account the same matters as listed above. | 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. The Taxpayer is not a contributing member of 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, the Taxpayer is not a resident under this test. | Detailed Reasoning - Conclusion: The Taxpayer satisfies the test of residency and so is a resident of Australia for income tax purposes for the period from Date 1 to Date 3. | Summary: Any capital gain or loss that the Taxpayer makes from the sale of the Property will be disregarded. | Detailed Reasoning - Detailed reasoning: The Taxpayer satisfies the conditions contained in subsection 118-110(1) of the Income Tax Assessment Act 1997 (ITAA 1997) in relation to the sale of the Property as: • The CGT event happens in relation to a CGT asset owned by the Taxpayer • The CGT asset is an ownership interest in a dwelling • The Taxpayer is an individual • The dwelling was the Taxpayer's main residence throughout his ownership period, and • The interest did not pass to the Taxpayer as beneficiary in, and he did not acquire it as a trustee of, the estate of a deceased person. The Taxpayer satisfies the conditions in subsection 118-110(2) of the ITAA 1997 in relation to the sale of the Property as CGT event A1 will happen to the Taxpayer's ownership interest in it. The Taxpayer's issue is with the conditions in subsection 118-110(3) of the ITAA 1997 as the Taxpayer will be a foreign resident at the time of the CGT event. Is the Taxpayer denied the main residence exemption due to being a foreign resident? Subsection 118-110(3) of the ITAA 1997 denies the main residence exemption to a taxpayer if at the time of the CGT event they are either: • An excluded foreign resident, or • A foreign resident who does not satisfy the life events test. Subsection 118-110(4) of the ITAA 1997 defines a taxpayer as an excluded foreign resident at a particular time if: • The taxpayer is a foreign resident, and • The taxpayer has been a foreign resident for a continuous period of more than six years as at that particular time. The Taxpayer will not be an excluded foreign resident as at the time of the CGT event as the Taxpayer has been a resident of Australia within the previous six years. Subsection 118-110(5) of the ITAA 1997 states that a taxpayer satisfies the life events test at the time a CGT event happens if: • The taxpayer has been a foreign resident for a continuous period of less than six years as at that particular time, and • The taxpayer is covered by any of certain situations including that the CGT event happens because of a matter referred to in a paragraph of subsection 126-5(1) involving the taxpayer and their spouse (or former spouse). Paragraph 126-5(1)(a) of the ITAA 1997 refers to a court order under the Family Law Act 1975 or under a State law, Territory law or foreign law relating to breakdowns of relationships between spouses. It is important to note that the rollover requirement that the transfer be between spouses (or former spouses) in subsection 126-5(1) of the ITAA 1997 is in the introductory part of the subsection and not in any of its paragraphs. It was not intended that the life events test would require a transfer of the asset between spouses (or former spouses). Taxation Determination TD 1999/47 states an order made by consent (a consent order) is a court order for the purposes of paragraph 126-5(1)(a) of the ITAA 1997. The Taxpayer will satisfy the life events test at the time of the CGT event because the Taxpayer has been a resident of Australia within the previous six years and the CGT event will occur because of the consent order. Consequently, the Taxpayer will not be denied the main residence exemption due to being a foreign resident at the time of the CGT event.