Private ruling: Residency and deemed disposal
Date of advice: 16 January 2017
Published: June 2017
Ruling period: Year ending 30 June 2017 | Year ending 30 June 2018 | Year ending 30 June 2019 | Year ending 30 June 2020
Date scheme commenced: 1 July 2016

Ruling: Q1: Are you an Australian resident for income tax purposes? | A1: No | Q2: Will CGT event I1 happen to your existing home in Australia? | A2: No

Relevant facts and circumstances: You were born in Australia. You are a citizen of Australia. You intend to move to Country X permanently in 201X financial year. You have a visa that allows you to enter Country X. Your current visa allows you to stay for maximum n months. You will apply for another visa after that, which will allow you to stay for maximum m months. The visa can be renewed every m months. You intend to visit Australia couple of times per year. Each stay is expected to be maximum 14 days. You have informed the Australian Electoral Commission and Medicare that you are departing Australia. You have advised your private health insurance provider to have your policy suspended or cancelled. You rent a property in Country X. The rental agreement was signed for z years. You can renew your rental agreement in the future. You have paid the rent for the first v months. You will pay the rest rent before you move to Country X. You lived in your own home in Australia prior to leaving. You do not intend to rent out your Australia property. You will maintain bank accounts in Australia. You will retain a car in Australia. You do not intend to make any investments in Australia while overseas. You intend to give your household effects in Australia to your family. You intend to take your personal effects in Australia to Country X. The only income you will receive from Australia is small amounts of interest. You have advised Australian financial institutions with whom you have investments with that you are a foreign resident so that non-resident withholding tax can be deducted. You intend to acquire assets in Country X. You have a spouse. Your spouse will accompany you to Country X. Your spouse intends to reside overseas indefinitely. Your spouse will be working in Country Y approximately 200 days per year. Your spouse will return to Country X while not working. You intend establish social and sporting associations in Country X You intend to obtain a Country X's driver's licence and other licences or registrations as required. You will not maintain any professional or occupational memberships in Australia. You do not intend to seek paid work in Country X. You intend to learn cooking and fitness techniques in Country X. Both you and your spouse are not Commonwealth Government of Australia employees for superannuation purposes.

Relevant legislative provisions: Income Tax Assessment Act 1997 Section 6-5 | Income Tax Assessment Act 1997 Subsection 995-1(1) | Income Tax Assessment Act 1936 Subsection 6(1) | Income Tax Assessment Act 1997 Section 110-10 | Income Tax Assessment Act 1997 Subsection 104-160(3) | Income Tax Assessment Act 1997 Section 885-15

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 income tax 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 (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 outcomes of several Administrative Appeals Tribunal (AAT) cases have determined that the word ' resides' should be given the widest meaning and there have been a number of factors identified which can assist in determining if a particular taxpayer is a resident of Australia under this test. Recent case law decisions have considered the following factors in relation to whether the taxpayer was a resident under the 'resides' test: (i) Physical presence in Australia (ii) Nationality (iii) History of residence and movements (iv) Habits and "mode of life" (v) Frequency, regularity and duration of visits to Australia (vi) Purpose of visits to or absences from Australia (vii) Family and business ties to different countries (viii) Maintenance of place of abode. These factors are similar to those which the Commissioner has said are relevant in determining the residency status of individuals in Taxation Ruing IT 2650 - Income tax: residency - permanent place of abode outside Australia 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 individual circumstances. In your case, you intend to move to Country X permanently in 201X financial year. You have informed the Australian Electoral Commission and Medicare that you are departing Australia. You have advised your private health insurance provider to have your policy suspended or cancelled. You intend to give your household effects in Australia to your family. You intend to take your personal effects in Australia to Country X. You rent a property in Country X. The rental agreement was signed for z years and can be renewed. You have paid the rent for the first v months. You will pay the rest rent before you move to Country X. You intend to establish social and sporting associations when required. You intend to obtain a Country X's driver's licence and other licences or registrations as required. Therefore, you are not a resident under this test. | Detailed Reasoning - The domicile 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. Domicile is the place that is considered by law to be your permanent home. It is usually something more than a place of residence. 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. In your case, you were born in Australia and you are a citizen of Australia; therefore, your domicile of origin is 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. The Commissioner is satisfied that you have a permanent place of abode outside Australia from the date you move to Country X permanently for the following reasons: ● You intend to move to Country X permanently. ● You have signed a rental agreement in Country X for z years which can be extended. ● Your spouse will accompany you to Country X. ● Your spouse intends to reside overseas indefinitely. ● Your will remain in Country X while you spouse is working in Country Y. ● Your spouse will return to Country X while not working. Therefore, you are not a resident under this test from the date you move to Country X permanently. | 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 intend to visit Australia couple of times per year. And each stay is expected to be maximum 14 days. You will not be in Australia for more than 183 days in any financial year while you are living in Country X. 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 contributing member of the PSS or the CSS or a spouse of such a person, or a child under 16 of such a person. You will not be treated as a resident under this test. | Detailed Reasoning - Your residency status: Based on the facts you have provided, you are not a resident of Australia for income tax purposes. | Detailed Reasoning - Capital gains tax: Section 100-10 of the ITAA 1997 explains that capital gains tax (CGT) is the income tax you pay on any net capital gain you make as a result of a CGT event being triggered. This capital gain is included in your annual income tax return and you are taxed at your marginal tax rate. CGT event I1 occurs if you stop being an Australian resident. The time of CGT event I1 is when you stop being a resident. CGT event I1 applies to all of your world-wide assets that are not taxable Australian property. You are considered to have disposed of each of these assets at their market value on the day you stop being an Australian resident. The exceptions are contained in subsection 104-160(3) of the ITAA 1997 which states that CGT event I1 does not apply to "taxable Australian property", defined in section 855-15 of the ITAA 1997 as: "Taxable Australian real property" which, in turn, is defined as real property situated in Australia, or a mining, quarrying or prospecting right if the subject minerals, petroleum or quarry materials are situated in Australia. In your case, your home in Australia meets the definition of the taxable Australian real property. Therefore, CGT event I1 will not happen to your home in Australia. However, CGT event I1 will occur for all your remaining assets unless you make a choice under section 104-165(2) for any gains or losses to be disregarded, in which case all your other assets are taken to be taxable Australian property.