Principles of Taxation Law: CGT Advice for Australian Expat

This assignment provides comprehensive tax advice to an Australian expat, Rob, regarding his Australian property and capital gains tax (CGT) obligations. The analysis begins by determining Rob's residency status, considering his move to New Zealand, marriage to a New Zealander, and lack of plans to return to Australia. It then assesses whether his Sydney residence, 10 Snapper Street, qualifies as his principal place of residence for CGT purposes, even though he has not lived there for seven years and his sons reside there. The assignment examines the relevant legislation, including the Income Tax Assessment Act 1997 (ITAA 1997) and the Treasury Laws Amendment (Reducing Pressure on Housing Affordability Measures) Bill 2019, to determine the applicability of the main residence exemption. It concludes that Rob is likely a foreign resident for tax purposes and that the CGT exemption may be available if the property is sold before June 30, 2020, based on the commencement date of ownership. The assignment also considers the implications of the Treasury Laws Amendment Bill 2019, which removes the CGT exemption for foreign residents who have been residents for over six years. The document is a solution to the assignment published on Desklib, a platform that offers AI-based study tools and resources for students.

Running head: AUSTRALIAN TAXATION LAW
Australian Taxation Law
Name of the Student
Name of the University
Author Note

1AUSTRALIAN TAXATION LAW
Table of Contents
Issue.............................................................................................................................................2
Relevant Law...............................................................................................................................2
Application...................................................................................................................................3
Conclusion...................................................................................................................................4
References....................................................................................................................................6

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Issue
The advice is needed to be provided to Rob, who is an Australian citizen expat. Having
married a New Zealander and settled in New Zealand, he has no plans of moving back to
Australia. However, he has a residence in Sydney at 10 Snapper Street Potts Point valued at $1
million. This is the main residence of Rob when he lives in Australia. He does not have any other
land or property in Australia and the property in New Zealand is rented by him. However, the
property in 10 Snapper Street is used by Rob’s two sons and their spouses for their residential
purposes. Even though Rob has set aside a room for himself, he has not returned to Australia for
7 years. For the purpose of capital gains tax, Rob considers this residence as his principal
residence. The advice that needs to be provided to Rob in this situation is related to three aspects.
The primary is related to his residential status. The other related to his assumption in considering
10 Snapper Street as his principal place of residence. The advice needs to be provided is whether
the assumption is correct or not. Similarly, the changes that came into effect after the passing of
the Treasury Laws Amendment (Reducing Pressure on Housing Affordability Measures) Bill
2019 also need to be taken into consideration.
Relevant Law
The main difference which exists between the Australian resident and the foreign resident
is the different tax rates charged on them. The main adverse issues faced by the foreign residents
is that they have no tax free threshold. They also pay higher taxes initially. Under s6-5(2) ITAA
1997, an Australian resident is required to pay taxes on the income earned by them on a
worldwide basis (Legislation.gov.au. 2020). However, a non-resident of Australia for taxation
purposes is not required to pay taxes on any of their income. The residence of a taxpayer is
determined on the basis of the court rulings in Miller v FCT (Ato.gov.au. 2020). Some of the

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relevant factors considered by the court include the physical presence, duration and frequency of
visits, purpose of visit and maintenance of the place of abode. If the taxpayer is able to prove
that they do not have a place of abode and do not intend to return to Australia, then their
Australian residence is not considered anymore. According to s118-100 ITAA 1997, any capital
gain or loss incurred from the sale of an asset which is the main residence of a person should be
generally ignored for taxation purposes. However, a few other conditions need to be satisfied for
the same. They include the taxpayer being an individual and the dwelling being their main
residence throughout the ownership period. As per s118-145(3), if the taxpayer is not residing in
the property and no income is being earned from the asset, then the main residence exemption is
to be applied indefinitely. The capital proceeds earned from the asset are not chargeable under
tax in this case. Recent changes have been brought in the form of Treasury Laws Amendment
Bill 2019. The main aspect of this bill is that it contains provisions which will remove the Capital
Gains Tax (CGT) exemption for foreign residents. However, there are a few exceptions in this
situation. The main residence exemption is available for events occurring prior to 30 June 2020
and the ownership of the asset commenced before 9 May 2017 (Aph.gov.au. 2020). Similarly,
the exemption is only available to people who have been a foreign resident for a period of 6
years or less in very limited and unfortunate circumstances. Some of these unfortunate
circumstances include life events like a terminal medical condition or the death of a spouse or
child below 18 years of age. People who do not qualify under the transitional provisions or life
event exemption need to pay heavy taxes on the capital gains arising from the sale of the asset.
Application
In case of Rob, the first consideration is his residence. Rob has been an Australian
resident by birth. However, some of the circumstances since that time have undergone a

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significant change. As he has moved to New Zealand more than 8 years ago, and is married to a
New Zealander, it can be suggested that he may not have intentions of maintaining his abode in
Australia. It has also been stated that he has no plans of moving back to Australia. Even though
he only has a rented property in New Zealand, it is not an indicator of his Australian residence in
any manner. Similarly, he has not returned to Australia for more than 7 years. This means that
the frequency of his visits to Australia is also very low. Even though his sons reside in Australia,
the house property is not being maintained by him for his residential purposes. Similarly, he has
a room set aside for himself but not the property in entirety. This indicates that he does not
intend to continue with Australia as his domicile and intends to remain a citizen of New Zealand
for the foreseeable future. As held in Harding v FCT, his intention to remain a resident of New
Zealand along with the absence of any indicators which suggest otherwise is sufficient to
consider him as a foreign resident for taxation purposes (Ato.gov.au 2020). As he has not used
the house property for any income producing activities, the main residence CGT exemption is
available to him for an indefinite period. In this case, as it can be suggested that he does not
intend to continue as a resident of Australia, his foreign residence needs to be taken into
consideration. The Treasury Laws Amendment Bill becomes applicable in this situation.
However, as he has been a foreign resident for more than 6 years, he is not eligible for exemption
under the life event exemption. This is because his foreign residence is not due to some of the
life events like the death or illness of a spouse or some other uncontrollable factor which made
the foreign residence unavoidable. Hence, the period of commencement and the tenure of
ownership of Rob become applicable in this situation. The date from which the ownership of the
property has begun is an important factor in providing the advice on CGT in the hands of Rob. It
can be assumed that the ownership of the property has begun prior to May 2017. As it is being

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considered that the ownership of the asset has begun prior to 9 May 2017, the main residence
CGT exemption is available if the asset is sold before 30 June 2020. If the CGT event occurs
before that date, then the entire capital gains or losses are exempt from taxation. Similarly,
conducting the sale of the house after that date would result in the payment of a large amount of
taxes on the part of Rob. This is because of his inability to claim exemptions under other aspects
like that of a foreign resident and other relevant aspects which exempt the capital gains from
taxation in his hands.
Conclusion
Based on the above discussion, it can be suggested that an Australian resident for taxation
purposes is someone who maintain their domicile in Australia or intend to do so despite not
physically residing there. In their cases, tax needs to be paid on the worldwide income. However,
foreign residents having a house property in Australia are eligible for exemption from CGT
under the main residence exemption. As Rob has not been using his house property for any
income generating purposes, the main residence exemption from CGT is available indefinitely.
However, the recent Treasury Laws Amendment Bill 2019 removes this exemption. It states that
for foreign residents who have continued to be so for more than 6 years are not eligible under the
exemption. In order to obtain the exemption, the CGT event must take place before 30 June 2020
and the ownership of the asset must have commenced before 9 May 2017. As the ownership of
Rob has commenced before prior to the aforementioned date, the exemption will be available to
him if the asset is sold before 30 June 2020.

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References
Aph.gov.au. (2020). Treasury Laws Amendment (Reducing Pressure on Housing Affordability
Measures) Bill 2019 – Parliament of Australia . [online] Available at:
https://www.aph.gov.au/Parliamentary_Business/Bills_Legislation/Bills_Search_Results/Result?
bId=r6439 [Accessed 15 Feb. 2020].
Ato.gov.au. (2020). [online] Available at:
https://www.ato.gov.au/law/view/pdf/dis/dis_harding.pdf [Accessed 15 Feb. 2020].
Ato.gov.au. (2020). Legal Database. [online] Available at:
https://www.ato.gov.au/law/view/document?Docid=TXR/TR9817/NAT/ATO/00001 [Accessed
15 Feb. 2020].
Legislation.gov.au. (2020). Income Tax Assessment Act 1997 . [online] Available at:
https://www.legislation.gov.au/Details/C2017C00336/Controls/ [Accessed 15 Feb. 2020].