Private ruling: Residency
Date of advice: 18 December 2017
Published: May 2018
Ruling period: Year ended 30 June 20XX | Year ending 30 June 20XX | Year ending 30 June 20XX | Year ending 30 June 20XX
Date scheme commenced: 1 July 20XX

Ruling: Questions and answers | 1. Did you cease to be a resident of Australia for taxation purposes in January 20XX? | Yes. | 2. Will you be able to apply any capital losses made on the disposal of your Australian shares against any capital gains you make regardless of whether you are an Australian resident or foreign resident? | Yes.

Relevant facts and circumstances: You were born in country X and you are a citizen of both country X and Australia. You relocated to the country Y for work purposes for an indefinite period of time. You have an employment contract which is for an indefinite period of time. You have a country Y work visa which is current for X years. You are renting your own accommodation in the country Y which you have furnished yourself. Prior to leaving Australia you were living with your partner and child in the house you own. You returned to Australia to visit your partner and child. You and your partner agreed to end your relationship, the day before you returned to the country Y. You have continued to financially support your partner and child. When you visit your child in Australia, you stay at the house you own but in a separate room by yourself. Your return visits to Australia have not and will not exceed 183 days in any financial year. You own shares listed on the Australian stock market. You have a bank mortgage loan over your Australian house property. You have retained a bank account and a credit card in Australia. You do not own a motor vehicle in Australia of the country Y. You have removed your name from the Australian electoral roll. You have notified all relevant financial institutions that you are a non-resident. You and your partner are not eligible to contribute to the relevant Commonwealth Government Superannuation funds.

Relevant legislative provisions: Income Tax Assessment Act 1936 subsection 6(1) | Income Tax Assessment Act 1997 section 6-5 | Income Tax Assessment Act 1997 section 102-5 | Income Tax Assessment Act 1997 section 102-10 | Income Tax Assessment Act 1997 section 104-160 | Income Tax Assessment Act 1997 subsection 104-165(2) | Income Tax Assessment Act 1997 section 855-10

Reasons for decision: Summary: 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 gained 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. 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 . 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 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'. Although the question of whether a person resides in a particular country is a question of fact, the courts have referred to and taken into account various factors considered to be relevant. These are: ● 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 to different countries ● Maintenance of place of abode in Australia. It is important to note that not one single factor is decisive and the weight given to each factor depends on individual circumstances. In deciding cases of residency, the courts and tribunals have noted that a person does not necessarily cease to be a resident because he or she is physically absent from Australia. Instead, the test is whether the person has retained a continuity of association with a place in Australia, together with an intention to return to that place and an attitude that the place remains home (Joachim v Federal Commissioner of Taxation 2002 ATC 2088 ). In The Engineering Manager and Commissioner of Taxation [2014] AATA 969 ( Engineering Manager ), the taxpayer was found to be a non-resident even though he maintained a house in Australia in which his spouse and children lived. In this case, the taxpayer had been living and working overseas for a period of time and had effectively separated from their partner. On their return visits to Australia to visit their children they stayed in a separate room at the family home. The tribunal noted that the taxpayer considered the foreign country to be their home and stated that the connection they had with their children was not determinative of whether they resided in Australia. In your case: ● You live and work in a foreign country ● You have a work contract for an indefinite period of time ● You have your own place of abode in the foreign country ● You do not intend on returning to Australia to live in the foreseeable future Although you have an ongoing connection with Australia through your child, former family home and other assets, you do not have an intention of returning to Australia to live in the foreseeable future and have established a new home and working life in another country. Therefore, we consider that you ceased to reside in Australia in January 20XX and are not a resident under the resides test of residency from that date. | Detailed Reasoning - The domicile and permanent place of abode test: If a person’s domicile is Australia they will be an Australian resident unless the Commissioner is satisfied they have a permanent place of abode outside of Australia. A person's domicile is generally their country of birth. This is known as a person's 'domicile of origin'. In order to show that a domicile of choice has been adopted, the person must be able to prove an intention to make his or her home indefinitely in that country. The intention needs to be demonstrated in a legal sense, for example, by way of obtaining a migration visa, becoming a permanent resident or becoming a citizen of the country concerned. Your domicile of origin is country X and your domicile of choice is Australia. As there is no evidence to suggest you have changed your domicile to the country Y, your domicile is still Australia. 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. It is the Commissioner’s view that an overseas stay in excess of two years may indicate that an individual can be considered to have a permanent place of abode overseas, subject to a consideration of all the other relevant circumstances applying to the taxpayer. In your case, the Commissioner is satisfied that you have established a permanent place of abode outside Australia because: ● You live and work in a foreign country ● You have a work contract for an indefinite period of time ● You have your own place of abode in the foreign country ● You do not intend on returning to Australia to live in the foreseeable future Therefore, you are not a resident under this test. | 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 will not spend more than 183 days in Australia while you are in country Y. You are not a resident under this test. | Detailed Reasoning - The superannuation test: An individual is still considered to be a resident if that person is eligible to contribute to the PSS or the CSS, or that person is the spouse or child under 16 of such a person. To be eligible to contribute to those schemes, you must be or have been a Commonwealth Government employee. You are not a resident under this test. | Detailed Reasoning - Your residency status: You ceased to be a resident of Australia for taxation purposes in January 20XX. | Detailed Reasoning - Capital gains tax (CGT) and ceasing to be an Australian resident: A foreign resident may disregard a capital gain or loss made from the disposal of a CGT asset if it is not taxable Australian property, for example, land or buildings (section 855-10 of the ITAA 1997). If a taxpayer ceases to be an Australian resident, a CGT ‘event’ may be triggered. The relevant CGT event for an individual ceasing to be an Australian resident is CGT event I1 (section 104-160 of the ITAA 1997). If a taxpayer ceases to be an Australian resident, he or she is taken to have disposed of all of his or her assets (except those that are taxable Australian property, for example, land or buildings): ● at the time the taxpayer ceases to be a resident, and ● for their market value at that time. CGT event I1 can place financial hardship on individual taxpayers, who have not physically disposed of an asset at the time the CGT event occurs, but who nevertheless have to fund a tax bill where again is made on the deemed disposal. To alleviate any possible hardship, an individual taxpayer may choose to defer CGT event I1. If a taxpayer makes this choice, the taxation of the unrealised capital gain or loss is only deferred, it is not permanently disregarded. Any capital gain will be subject to tax when the taxpayer actually disposes of the relevant asset and has the funds to meet any tax liability. Subsection 104-165(2) of the ITAA 1997 achieves this result by deeming the relevant asset to be taxable Australian property until such time as another CGT event happens in relation to the asset or the taxpayer once again becomes an Australian resident (whichever occurs first). In the event of the asset being disposed of in the future and a capital loss being made, section 102-10 of the ITAA 1997 allows the loss to be deducted from any capital gain made during the year. This is so regardless of whether you are a resident or non-resident at the time the loss is made. Where a capital loss is unable to be utilised in a particular year, it may be carried forward and applied to a capital gain in a future year (section 102-5 of the ITAA 1997).