Private ruling: Various
Published: February 2015
Ruling period: Year ending 30 June 2015
Date scheme commenced: 1 July 2014`

Ruling: Questions and answers: | 1. Are you a non-resident of Australia for income tax purposes from the date of your departure from Australia and therefore not assessable on your foreign sourced income? | Yes. | 2. Are you liable for the Medicare levy from the date of your departure from Australia? | No. | 3. Will you be liable for any capital gains tax with regards to your mutual fund investments if you apply the deemed disposal rule on your investments in your income tax return? | Decline to rule. | 4. Will capital gains tax apply to your property in Australia? | Decline to rule.

Relevant facts and circumstances: This ruling is based on the facts stated in the description of the scheme that is set out below. If your circumstances are materially different from these facts, this ruling has no effect and you cannot rely on it. The fact sheet has more information about relying on your private ruling. You are a citizen of country T and a temporary resident of Australia. You moved to Australia and became a resident of Australia for income tax purposes. You have a spouse who is also a country T citizen. Your assets in Australia consist of a home and Australian mutual funds. You and your spouse left Australia to live and work overseas for an indefinite period. You have not decided whether you will choose to disregard the gain or loss under CGT event I1 with regards to your CGT assets. You have not indicated whether you intend to dispose of your residence in Australia.

Relevant legislative provisions: Income Tax Assessment Act 1997 Subsection 6-5(2) | Income Tax Assessment Act 1997 Section 995-1 | Income Tax Assessment Act 1936 Subsection 6(1)

Reasons for decision: Detailed Reasoning - Residency: An Australian resident for tax purposes is defined in subsection 995-1(1) of the Income Tax Assessment Act 1997 (ITAA 1997) to be a person who is a resident of Australia for the purposes of the Income Tax Assessment Act 1936 (ITAA 1936). The terms resident and resident of Australia, in regard to an individual, are defined in subsection 6(1) of the ITAA 1936. The definition provides four tests to ascertain whether a taxpayer is a resident of Australia for income tax purposes. These tests are: • the resides test • the domicile test • the 183 day test • the superannuation test. From the information you have provided you will not be living in Australia after your departure and your domicile will be country T. Neither you nor your spouse were members of a Commonwealth Government superannuation scheme. Therefore you do not satisfy any of the above tests for residency after departing Australia. Accordingly from the date of your departure from Australia you ceased to be a resident of Australia for income tax purposes under subsection 995-1(1) of the ITAA 1997 and subsection 6(1) of ITAA 1936. | Detailed Reasoning - Assessable income: Subsection 6-5(3) of the ITAA 1997, provides that the assessable income of a non-resident taxpayer only includes ordinary income derived directly or indirectly from all Australian sources during the income year and other ordinary income that a provision includes as assessable income on some basis other than having an Australian source. From the date of your departure from Australia as you ceased to be a resident of Australia for tax purposes all your foreign employment income ceased to be assessable under subsection 6-5(3) of the ITAA 1997. | Detailed Reasoning - Medicare levy: Where a taxpayer either becomes a resident or ceases to be an Australian resident during a year of income, a taxpayer's Medicare is calculated on a pro-rata basis according to the number of days that the taxpayer was a resident of Australia for income tax purposes. In your case, the Medicare levy will apply on a pro rata basis based on the number of days that you were an Australian resident for tax purposes. | Detailed Reasoning - Question 3 and 4: The Commissioner has declined to rule. Subsection 359-35(2) of Schedule 1 to the Taxation Administration Act 1953 (TAA) provides that a private ruling does not have to be given if making the ruling would prejudice or unduly restrict the administration of a taxation law. This includes where the scheme, to which the application relates is not seriously contemplated or hypothetical. Based on the facts provided by you, the scheme is hypothetical. You have not indicated which course of action you intend to pursue in terms of your mutual fund investments or indicated any definite plans to sell or otherwise dispose of your property in the near future. Therefore the advice you have requested with regards to these investments is tax planning advice that would depend on unknown facts and future events. Accordingly, the Commissioner has declined to rule on these questions for the purposes of Division 359 of Schedule 1 to the TAA. | Detailed Reasoning - Ceasing to be an Australian resident for income tax purposes: If a taxpayer ceases to be an Australian resident, a CGT event may be triggered. The relevant CGT event for an individual or company ceasing to be an Australian resident is CGT event I1. 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): • at the time the taxpayer ceases to be a resident, and • for their market value at that time. Taxable Australian property includes land. These provisions effectively crystallise any unrealised gains or losses the taxpayer has earned at the time the taxpayer stops being an Australian resident on assets that are leaving the Australian tax net, and subject them to Australian tax. This ensures that a taxpayer cannot avoid CGT on these unrealised gains when he or she ceases to be an Australian resident. 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 on the deemed disposal. It would be difficult for many individuals to fund this cost until they have actually disposed of the asset in question. To alleviate this 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. The gain will be subject to tax when the taxpayer actually disposes of the relevant asset (and therefore have the funds to meet any tax liability). | Detailed Reasoning - Taxable Australian property: Assets that are taxable Australian property remain subject to Australian tax after a taxpayer ceases to be an Australian resident. Consequently, there is no deemed disposal of such assets when a taxpayer changes residency status for tax purposes. A taxpayer's home or investment property that is located in Australia is 'taxable Australian property' and will remain taxable Australian property, despite the taxpayer becoming a non-resident for income tax purposes. Capital gains tax will be applied (if applicable) when the property is disposed of (i.e. when ownership of the property is transferred from one person to another). | Detailed Reasoning - Capital gains tax: A taxpayer can make a capital gain or capital loss if a capital gains tax (CGT) event happens to a CGT asset that they own. A CGT event happens when a transaction takes place such as the disposal of a CGT asset. Land and dwellings are CGT assets. The most common CGT event is called a CGT event A1, which occurs when there is a change of ownership of a CGT asset. This usually happens when an individual disposes of a CGT asset to someone else, for example when an individual sells their home. | Detailed Reasoning - Main residence exemption: Generally, an individual can ignore a capital gain or loss from a CGT event that happens to their ownership interest in a dwelling that is their main residence. To be eligible to a full exemption from CGT the following conditions must be satisfied: • the dwelling must have been the individuals home for their entire ownership period • they must not have used the dwelling to produce assessable income, and • any land on which the dwelling is situated is less than two hectares. If the criteria for a full main residence exemption are not met, a partial exemption may apply if: • the dwelling was an individual's main residence during only part of their ownership period • the dwelling was used to produce income, or • the land on which the dwelling is situated is more than two hectares. | Detailed Reasoning - Main residence - absence rule: In some cases a special rule applies to an individual to enable them to continue to their main residence status after a dwelling ceases to be their main residence, for example if the individual moves out of the dwelling temporarily. If a dwelling was not an individual's main residence for their entire ownership period and the individual chooses to continue to treat a dwelling as their main residence even though they no longer reside in the dwelling they may still be entitled to a full main residence exemption. To enable an individual to obtain a full main residence exemption under this rule, the individual cannot treat any other dwelling as their main residence during this time. If the property is used to produce assessable income, for example if the dwelling is rented or is available for rent - an individual can choose to treat the dwelling as their main residence for up to six years after the individual has stopped living in the dwelling. If the individual is absent more than once during their ownership period and makes the dwelling available for rent, the six year maximum period that they can treat the dwelling as their main residence applies to separately to each period of absence. | Detailed Reasoning - Main residence first used to produce income: If a main residence is first used to produce income after 20 August 1996, there is a special rule that affects the way in which a capital gain or capital loss is calculated when the residence is disposed of . Under the rule you are taken to have acquired the dwelling at the time you first started using it for income producing purposes at its market value at that time if the following conditions are satisfied: • only a partial main residence exemption would be available under Subdivision 118-B of the ITAA 1997 because the dwelling was used for the purpose of producing assessable income during your ownership period; and • the income producing started after 7.30pm (by legal time in the Australian Capital Territory) on 20 August 1996; and • You would have been entitled to main residence exemption if you had entered into a contract to dispose of the dwelling just before the first time you used it for the income producing purpose. | Detailed Reasoning - Please note: Where a taxpayer elects to apply the 'absence rule', the 'main residence first used to produce income rule' will only apply if the dwelling is only eligible for a partial main residence exemption.