Private ruling: Residency and capital gains tax
Date of advice: 30 January 2018
Published: June 2018
Ruling period: Year End 30 June 2018
Date scheme commenced: 1 July 2017


Relevant facts and circumstances: You entered Australia in the 2012 /13 financial year to fulfil the relevant Visa requirement. After settling, you engaged a migration agent for preparation of a Business Owner Subclass 890. The purpose of the application of the Subclass 890 was to convert the existing Visa into a Permanent Residence Visa. In the 2013/14 financial year, you purchased your principal place of residence. You purchased a commercial premise with a leased tenant. Your intention was to change the purpose of the building. Two development applications have been lodged for modifications. In the 2014/15 financial year, the premises were opened and you have been managing the day to day operations up until now. Since you arrived in Australia, you have been actively building up your investment portfolio by purchasing properties. You joined a private health insurer in the 2013/2014 financial year. You joined a gym for the purpose of a life style and community awareness. As per your passport, you have resided in Australia for more than 300 days per annum since first arriving. Your migration agent is in the process of converting your Business Owner Visa status into a Permanent Residence Visa since you have met all the requirements. Meanwhile, a Bridging (A) Visa has been granted. You were approached by a Developer recently who is keen to purchase your business premises.

Relevant legislative provisions: Income Tax Assessment Act 1936 subsection 6(1) | Income Tax Assessment Act 1997 Subdivision 115-A

Reasons for decision: Detailed Reasoning - Residency: The terms ‘resident’ and ‘resident of Australia’, in regard to an individual, are defined in subsection 6(1) of the Income Tax Assessment Act 1936 (ITAA 1936). The definition contains four tests which will help us ascertain whether you were a resident of Australia for income tax purposes. These tests are: (i) the residence according to ordinary concepts test; (ii) the domicile/permanent place of abode test; (iii) the 183 days/usual place of abode test; and (iv) the Commonwealth superannuation test. You need only fall within one of these categories to be a resident of Australia and must fall outside all four to be a non-resident. The main test for deciding your residency status is whether you reside in Australia according to the ordinary meaning of the word resides. (i) the residence according to ordinary concepts test The ordinary meaning of the word 'reside', according to the Macquarie Dictionary, 2001, rev. 3rd edition , 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'. In your case, ● you arrived in Australia on a temporary visa ● you intend to remain in Australia permanently and have applied for a permanent residence visa ● you are living in a home that you have purchased in Australia ● you operate a business in Australia In view of the above, the Commissioner considers that your behaviour in Australia reflects a degree of continuity, routine and habit that is consistent with residing here. Accordingly, you are an Australian resident for taxation purposes from the time you arrived in Australia. | Detailed Reasoning - Temporary resident: Subsection 995-1(1) of the ITAA 1997 specifies that a taxpayer is a temporary resident if: a. they hold a temporary visa granted under the Migration Act 1958; b. they are not an Australian resident within the meaning of the Social Security Act 1991, and c. their spouse is not an Australian resident within the meaning of the Social Security Act 1991. Under the Social Security Act 1991, an Australian resident is a person who resides in Australia and is either an Australian citizen or holds a permanent resident visa. Although you are a resident of Australia for taxation purposes, you are also a temporary resident of Australia because you are not an Australian citizen, you do not have a spouse who is an Australian citizen, and you have not yet received your permanent resident visa. Therefore you are currently a temporary resident. | Detailed Reasoning - Temporary residents and CGT discount method: The discount is generally only available where you have owned your CGT assets for at least 12 months. With effect from 9 May 2012 the 50% discount percentage available to individual taxpayers is reduced for any periods in which the taxpayer has been a foreign resident or a temporary resident during the period of ownership. The reduction applies irrespective of whether the taxpayer makes the capital gain for an asset owned directly or a discount capital gain received through a trust (section 115-105; 115-110) | Detailed Reasoning - Reduction of discount for foreign and temporary resident individual: As you acquired your CGT assets after 8 May 2012 the discount percentage is calculated using the following formula (section 115-115(2)): Number of days during discount testing period that you were an Australia resident (but not a temporary resident) 2 x Number of days in discount testing period The discount testing period will commence on the date you originally acquired the property not when you become a permanent resident.