Private ruling: Residency and Capital Gains Tax (CGT) Main Residence exemption
Date of advice: 22 June 2017
Published: October 2017
Ruling period: Year ended 30 June 2012 | Year ended 30 June 2013 | Year ended 30 June 2014 | Year ended 30 June 2015 | Year ended 30 June 2016 | Year ending 30 June 2017 | Issue 2 | Question 1 | Are you entitled to the Capital Gain Tax (CGT) exemption on the sale of your main residence? | Answer | Yes | This ruling applies for the following periods: | Year ending 30 June 2017
Date scheme commenced: 1 July 2011

Ruling: Q1: Are you a resident of Australia for taxation purposes? | A1: Yes

Relevant facts and circumstances: Your country of birth is Country X. You migrated to Australia and became an Australian Citizen. You purchased an Australian property and lived in this home. You purchased this property with a relative and are tenants in common. You recently sold this property and purchased a new Australian residence with the same ownership structure. Since 201X, you have spent significant time overseas in Country X. While you are in Country X, you work with your family business. You do not receive wages from this work. Your family look after your living needs in Country X and Australia as a result of your work with the family business. You enter Country X with a short term social visa valid for 60 days. Extensions can be granted for this type of visa on a monthly basis for a maximum of six months. You are not a citizen or resident of Country X. You do not pay tax in Country X. You stay with relatives and are given your own room in Country X, which you do not pay rent for. Your parents and siblings live in Australia. You have an Australian bank account which you earn interest from. Most personal belongings are located in Australia, with some clothes and daily living items in Country X. You have not informed Medicare or the Electoral Commission that you have left Australia. You have service connected at your residence in Australia. These accounts are listed in your name. Your mail is delivered to your Australian Address. You have not used your property for income producing purposes. The property was your main residence for the entire period of your ownership. Your Australian property was always available to you to reside in.

Relevant legislative provisions: Income Tax Assessment Act 1936 Section 6(1) | Income Tax Assessment Act 1997 Section 6-5 | Income Tax Assessment Act 1997 Subdivision 118-B

Reasons for decision: Summary: 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 offers four tests to ascertain whether each individual taxpayer is a resident of Australia for income tax purposes. These tests are the: ● resides test ● domicile and permanent place of abode test ● 183 day test and ● Commonwealth superannuation fund test. Under the domicile test, you are considered an Australian resident for income tax purposes for the periods 1 July 2011 to 30 June 2017. | Detailed Reasoning - Detailed reasoning: Section 6-5 of the Income Tax Assessment Act 1997 (ITAA 1997) provides that where you are a resident of Australia for taxation purposes, your assessable income includes income derived from all sources, whether in or out of Australia. However, where you are a foreign resident, your assessable income includes only income derived from an Australian source. This includes employment income, rental income, Australian pensions and annuities and capital gains on Australian assets. 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 offers four tests to ascertain whether each individual taxpayer is a resident of Australia for income tax purposes. These tests are the: ● resides test ● domicile and permanent place of abode test ● 183 day test and ● Commonwealth superannuation fund test. The primary test for deciding the residency status of each individual is whether they reside in Australia according to the ordinary meaning of the word resides. If the primary test is satisfied the remaining three tests do not need to be considered as residency for Australian tax purposes has been established. | Detailed Reasoning - The resides (ordinary concepts) test: The ordinary meaning of the word 'reside', according to the Macquarie Dictionary , 2001, rev. 3rd 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'. The Courts and the Tribunal have generally taken into account the following eight factors in considering whether an individual is an Australian resident according to ordinary concepts in an income year: ● physical presence in Australia; ● nationality; ● history of residence and movements; ● habits and 'mode of life' ● frequency, regularity and duration of visits to Australia; ● purpose of visits to or absences from Australia; ● family and business ties with Australia compare to the foreign country concerned; and ● maintenance of a place of abode. The weight to be given to each factor will vary with the individual circumstances and no single factor is necessarily decisive. Taxation Ruling IT 2650 Income Tax: Residency – permanent place of abode outside Australia , emphasises the intended and actual length of the individual's stay in an overseas country, any intention to return to Australia or travel elsewhere, the establishment or abandonment of any residence, and the durability of association that the individual maintains with a particular place in Australia as the main factors to be considered when determining the residency status of individuals leaving Australia. Physical presence in Australia ● You spend a considerable amount of time in Country X in comparison with your physical presence in Australia. This amount of time spent in Australia varies for each income year. Taxation Ruling TR 98/17 Income tax: residency status of individuals entering Australia , considers physical presence or length of time by itself is not determinative of residency. An individual's behaviour as reflected by a degree of continuity, routine or habit that is consistent with residing in Australia is relevant. Frequency, regularity and duration of visits to Australia ● You visit Australia on a semi-regular basis. Your visits vary in length. Family and business ties with Australia ● Your parents and siblings live in Australia. ● You have interest income in Australia. Maintenance of a place of abode ● You own 50% of your property in Australia, this property is available to you to live in when you return to Australia and is not rented out. Your parents and siblings continue to live in your Australian property when you are in Country X. ● All personal belongings remain in Australia, with some daily living essentials in Country X. Based on all the facts, your behaviour is consistent with not residing in Australia and being considered a non-resident for tax purposes under the resides test. | Detailed Reasoning - The domicile test: If a person’s domicile is Australia they will be considered an Australian resident unless the Commissioner is satisfied they have a permanent place of abode outside of Australia. In order to show that a new domicile of choice in a country outside Australia has been adopted, the person must be able prove an intention to make his or her home indefinitely in that country. The expression 'place of abode' refers to a person's residence, where they live with their family and sleep at night. In essence, a person's place of abode is that person's dwelling place or the physical surroundings in which a person lives. A permanent place of abode does not have to be 'everlasting' or 'forever'. It does not mean an abode in which a person intends to live for the rest of his or her life. An intention to return to Australia in the foreseeable future to live does not prevent the taxpayer in the meantime setting up a permanent place of abode elsewhere. Generally speaking, persons leaving Australia temporarily would be considered to have maintained their Australian domicile unless it is established that they have acquired a different domicile of choice or by operation of law. In order to show that a new domicile of choice in a country outside Australia has been adopted, the person must be able to prove an intention to make his or her home indefinitely in that country e.g., through having obtained a migration visa for a substantial period of time. You have demonstrated that your domicile would be in Australia for the following reasons: ● You enter Country X on a short term social visa. This Visa allows you to stay in Country X for 60 days but can be extended for a stay up to six months. As you leave Australia temporarily each visit and you do not have a right to live in Country X for an extended period of time, you cannot have a permanent place of abode in Country X. ● You own your property in Australia as tenants in common with a relative. Your family live in your home while you are in Australia and it is available to you to live in at all times. | Detailed Reasoning - The 183-day test: Where a person is present in Australia for 183 days during the year of income the person will be a resident, unless the Commissioner is satisfied that the person’s usual place of abode is outside Australia and the person does not intend to take up residence in Australia. You have been in Australia for varying periods since 201X. In majority of incomes years, you do not meet the 183 test and would not be considered a resident under this test. | Detailed Reasoning - The superannuation test: Under section 6(1) of the ITAA 1936, an individual is still considered to be a resident if that person is: a) a member of the superannuation scheme established by deed under the Superannuation Act 1990; or b) an eligible employee for the purposes of the Superannuation Act 1976; or c) the spouse, or a child under 16, of a person covered by (a) or (b). You are not eligible to contribute to the relevant Commonwealth superannuation funds therefore this test is not relevant to your circumstances. | Detailed Reasoning - Your residency status: Under the domicile test, you are considered an Australian resident for income tax purposes for the periods 1 July 2011 to 30 June 2017. | Summary: You are entitled to the Capital Gains Tax (CGT) exemption on the sale of your main residence property under Subdivision 118-B of the ITAA 1997. | Detailed Reasoning - Detailed reasoning: In certain circumstances, there may be an exemption that can apply, which means that the gain or loss created by a CGT event is disregarded. Exemptions from CGT are set out in Division 118 of the ITAA 1997. In particular, Subdivision 118-B of the ITAA 1997 contains the CGT main residence exemption. The exemption disregards a capital gain or capital loss a taxpayer makes from a CGT event that happens to a dwelling, or their ownership interest in a dwelling, which is their main residence. A capital gain or capital loss you make from a CGT event that happens to your main residence is disregarded if: ● you are an individual ● the dwelling was your main residence throughout your ownership period ● the property was not used to produce assessable income, and ● any land on which the dwelling is situated is not more than two hectares. The following facts have been taken into consideration in determining whether the property is your main residence: ● Your personal belongings are located at this property ● Your mail is delivered to this address ● You are listed on the electoral roll at this address ● You have services connected to the property with the accounts in your name. ● You and your family have resided in this property and it has been your main residence for your entire ownership period ● This property has not been used for income producing purposes ● The size of the land is less than two hectares Therefore you are entitled to the CGT exemption on the sale of your main residence property under Subdivision 118-B of the ITAA 1997.