1 Are you a resident of Australia for taxation purposes for the relevant financial year?
Yes. Question 2 Are you entitled to the full main residence exemption for the sale of your property? Answer Yes. This ruling applies for the following period : Year ended 30 June 20xx The scheme commences on: 1 July 20xx
Person A was born in Australia and is an Australian citizen. Person B was born in Country A and is a Country A citizen. You have two children together. You jointly purchased a unit around ten years prior to the ruling year. You both lived in this property as your main residence until around 5 years prior to the ruling year. You bought a block of vacant land in Country A together. Around 5 years prior to the ruling year you both moved to Country A to develop the property. You rented your Australian property out to tenants in a commercial agreement for around 3 and a half years from the time you returned to Country A. You stayed in a caravan on the block of land while constructing a dwelling on the property in Country A. Person A received maternity leave from her Australian employer at this time. Around 8 months later you both moved back to Australia to live in a rental property. You could not reside in your unit in Australia at this time as you had a dog. Person A returned to work for their employer at this time while Person B provided full time care for your first child. Around 6 months later your second child was born. Person B began work for an employer at this time.
Person A stopped working at this time to provide full time care to your two children. Around 14 months later you both moved back to Country A with your children to work on your Country A property. Person B continued in your Australian employment while Person A provided full time care for your two children. Around 15 months later you both moved back to Australia and lived in the property with your children. Person B continued to work in your Australian employment while Person A provided full time care for your two children. Around 9 months later you sold your unit for a sum of money greater than that for which you purchased it. You continued to reside in the property, renting it off the new owners for around three months after you sold it at which time you returned to Country A. You originally intended to remain in Australia for longer, but chose to move back to Country A at this time because the Country A government was closing the borders to travellers from Australia which made it difficult to manage your property development in Country A.
Income Tax Assessment Act 1936 subsection 6(1) Income Tax Assessment Act 1997 subsection 995-1(1) Income Tax Assessment Act 1997 section 118-110 Income Tax Assessment Act 1997 section 118-145 Income Tax Assessment Act 1997 sub-section 118-145(2)
Question 1 Summary You are both residents of Australia for the 20xx income year according to the resides test, the domicile test through the consideration of Andrew's permanent place of abode, and the 183 day test, therefore you are residents of Australia for taxation purposes for the 20xx income year. Detailed reasoning For tax purposes, whether you are a resident of Australia is defined by subsection 6(1) of the Income Tax Assessment Act 1936 (ITAA 1936). The definition has four tests to determine your residency for income tax purposes. These tests are: • the resides test • the domicile test • the 183 day test, and • the Commonwealth superannuation fund test. It is sufficient for you to be a resident under one of these tests to be a resident for tax purposes. Our interpretation of the law in respect of residency is set out in: • Taxation Ruling IT 2650 Income tax: residency - permanent place of abode • Taxation Ruling TR 98/17 Income tax: residency status of individuals entering Australia . The resides test
The resides test is the primary test of tax residency for an individual. If you reside in Australia according to the ordinary meaning of the word resides, you are considered an Australian resident for tax purposes. Some of the factors that can be used to determine whether you reside in Australia include: • period of physical presence in Australia • intention or purpose of presence • behaviour while in Australia • family and business/employment ties • maintenance and location of assets • social and living arrangements. No single factor is decisive, and the weight given to each factor depends on your specific circumstances. Where an individual does not reside in Australia according to ordinary concepts, they will still be an Australian resident if they meet the conditions of one of the other tests. The domicile test Under the domicile test, if your domicile is in Australia, you are a resident of Australia unless the Commissioner is satisfied that your permanent place of abode is outside Australia. Whether your domicile is Australia is determined by the Domicile Act 1982
and the common law rules on domicile. For example, you may have a domicile by origin (where you were born) or by choice (where you have changed your home with the intent of making it permanent). Whether your permanent place of abode is outside Australia is a question of fact to be determined in light of all the facts and circumstances of each case. Key considerations in determining whether you have your permanent place of abode outside Australia are: • whether you have definitely abandoned, in a permanent way, living in Australia • length of overseas stay • nature of accommodation, and • durability of association The 183-day test Under the 183 day test, if you are present in Australia for 183 days or more during the income year, you will be a resident, unless the Commissioner is satisfied that both: • your usual place of abode is outside Australia, and • you do not intend to take up residence in Australia. The question of usual place of abode is a question of fact and generally means the abode customarily or commonly used by you when are physically in a country. The Commonwealth superannuation test
An individual is a resident of Australia if they are either a member of the superannuation scheme established by deed under the Superannuation Act 1990 or an eligible employee for the purposes of the Superannuation Act 1976, or they are the spouse, or the child under 16, of such a person. Application to your circumstances We have considered each of the statutory tests listed above in relation to your particular facts and circumstances. We conclude that, for the year ended 30 June 20xx, you were both residents of Australia as follows. Taking into account your individual circumstances, we have concluded that you were residents of Australia according to ordinary concepts. We also consider that Person A's domicile was in Australia, and the Commissioner is not satisfied that your permanent place of abode was outside Australia. We consider that Person B's domicile is Country A, however the Commissioner is not satisfied that your permanent place of abode was outside Australia for the relevant income year. We considered the following factors in forming our conclusion:
• You both lived in Australia for most of the time in the ten years preceding the ruling year, primarily in your own unit. • You retained ownership of your Australian property until the ruling year and remained living in the property until after it was sold. • You retained employment in Australia even while living in Country A up until the ruling year. • The character of your time when living in Australia was that of a family residing in a manner consistent of that which one would expect of Australian residents. • You intended to remain in Australia for longer however the difficulty in traveling due to COVID travel restrictions caused you to decide to move back to Country A. You were in Australia for 183 days or more during the 2021 income year and the Commissioner is not satisfied that both: • your usual place of abode was outside Australia, and • you did not intend to take up residence in Australia. We considered the following factors in forming our conclusion: • At least one of you maintained employment in Australia during the times you resided in Country A.
• You lived in Australia in a permanent abode which you owned for much of the duration. • You lived in a caravan in Country A while developing your Country A property. You do not fulfil the requirements of the Commonwealth Superannuation test and are therefore not a resident under this test. Question 2 Summary Your circumstances meet the conditions described in section 118-110 of the ITAA 1997, therefore you may apply the full main residence exemption from CGT to the sale of the property. Detailed reasoning Section 118-110 operates to provide an exemption from capital gains tax on the sale of a dwelling which was the owner's primary residence. Subsection 118-145(2) provides that you may rent out a primary residence for a period of time which is less than 6 years and still remain eligible to claim the full main residence exemption.
You lived in the property as your main residence since you bought the property until you sold it in the ruling year, apart from the period of around 3 and a half years when you rented the property out to tenants. Therefore, you may elect to treat the property as your main residence for the entire period of time for which you owned it and claim the full main residence exemption as provided for in section 118-110 if the ITAA 1997.